We celebrated for the June Jubilee, but a winter recession won’t be easy | Economy

Rewind around this time last year and the UK economy was accelerating after the biggest crisis in 300 years. The year-on-year growth rate was 8.7% and it felt like the worst of the pandemic was over.

China had reopened to the world and inflation was falling as commodity prices – from copper and oil to wheat and timber – began to fall.

This week, the outlook is very different, reflecting the high cost of war ravaging Ukraine and supply chain blockages that can be attributed to China’s return to sporadic shutdowns of industrial centers and ports, blocking global supply chains.

Official figures on Friday showed the UK economy contracted by 0.1% in the three months to June, and the Bank of England expects a long recession to start in October .

Part of the drop was attributed to the two public holidays that deprived employers of the usual number of working days in June. The Bank of England believes the Jubilee holidays were significant and will be offset by a symmetric rebound in the third quarter, before a downturn is fully set in motion.

Data on the state of the labor market, inflation and retail sales will emerge over the next few days and should confirm the Bank’s view that economic output is currently stable and that a full-scale recession will begin later in the year.

On Tuesday, employment figures are expected to show that a shortage of workers has kept the job market tight. Unemployment will remain low and job vacancies will remain near record highs. According to City analysts, wage growth should have stabilized since May at 6.2%, including bonuses.

The government will try to present these figures as good news revealing how government policies have supported employment.

But the labor market is still short of about 700,000 workers, many with essential skills, who forecasters expected in pre-pandemic assessments to seek work in 2022.

Older workers have massively taken early retirement, while others are still suffering from the aftermath of Covid-19. EU workers denied visas have returned home. Young workers sought refuge in further and higher education.

This latter group will return – better qualified – to seek employment at some point. What is less clear is how many older workers will want to fill vacancies. Some analysts expect a jump in the consumer price index (CPI) measure of inflation to encourage them to look for work.

While the CPI is expected to remain below double the figures in data released on Wednesday, Threadneedle Street officials predicted it will climb to 13% in October, further eating into disposable incomes.

The prospect that energy bills, which underpin the rise in the CPI, will rise further in January and April next year, is another factor that could encourage some older workers to return to the office and the factory.

Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, says a massive return to work is likely to reduce pressure on wages. Increases, including bonuses, have already fallen for two consecutive months from 7% to 6.2%.

Wage settlements, mostly agreed by large employers, are another indication that wage increases remain subdued. The median settlement remained stable at 4% in June, according to XpertHR, while the permanent staff salary balance – which compensates companies offering higher salaries compared to those offering lower salaries – fell from May to June, then to an 11-month low in July. .

“These developments should reassure the Bank’s Monetary Policy Committee (MPC) that wage growth is unlikely to spiral out of control later this year, even if CPI inflation continues to rise. . As a result, we continue to expect the MPC to raise the base rate by 0.25 percentage points, up from 0.5 percentage points, next month,” Tombs said.

He is one of many analysts predicting that falling living standards will encourage more people who left the workforce during the pandemic to take up jobs.

If this scenario plays out, there will be less pressure on Bank policymakers to raise interest rates next year. This does not mean that we can recreate the optimism of previous years, but the recession could be less deep than expected.

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