There are fears the Bank of England could now raise interest rates even higher, as Joel Hills reports
If the Bank of England (BoE) is right then, in the the summer, the UK economy entered a prolonged recession.
But there’s little sign yet of the rise in unemployment which you’d expect in a downturn.
The head rate of unemployment rose slightly to 3.6% in September, but that’s still the lowest level since 1974.
Remarkably, given how dim the outlook is, firms are still experiencing recruitment problems.
The number of vacancies in the UK has fallen back from its peak in the spring, but there are still as many people looking for work as there are jobs which need filling.
The labour market remains tight and, as a result, pay is growing fast in the private sector - not fast enough to prevent livings standards from falling but fast enough to concern the BoE.
Workers in the private sector are responding to high inflation by pushing for higher wages and, in a tight labour market, the signs are that they are getting them.
The Bank’s worry is such such pay rises are likely to be funded by companies raising their prices and so the inflationary cycle will continue.
On this evidence, the Bank looks likely to increase interest rates again when it meets next month.
The picture in the public sector is starkly different. As the Resolution Foundation notes, there are "330,000 vacancies across the public administration, education, health and defence industries".
Pay is falling in real terms by 6.1% a year in the public sector. That’s brutal. Public services are under strain and recruitment and retention look like big issues.
Food for thought for a chancellor who is looking to hack back public spending in his autumn statement on Thursday.
Nurses have already voted to strike over pay. Industrial action generally is become more common.
The UK is in many ways lucky to have low unemployment, but the workforce is substantially smaller than it was pre-Covid and that’s not a good thing.
The pool of "economically active" adults available for work, contracted again in the summer and is 500,000 smaller than it was in February 2020. The pool would be even smaller still were it not for immigration.
Significant numbers of UK nationals - aged 50 - 64 in particular - are no longer working or looking for work.
It’s tempting to conclude this is a result of deteriorating health among the older population - reported cases of Long Covid remain high - but recent analysis by the Institute for Fiscal Studies (IFS) suggests the trend has been driven mainly by people deciding to retire early.
Inactivity has grown more strongly in the UK than much of the advanced economies we like to compare ourselves to, and helps explain why the UK's economic performance since the pandemic has been so under-whelming.
Higher inactivity also makes it harder for companies to find the staff they need, putting upward pressure on pay and pressure on the Bank to raise interest rates to contain it.
But what may be good for individuals isn’t necessarily good for the economy. On Thursday, the chancellor may try to dangle a few incentives to coax retirees back.