Home Business NewsBusiness Record employment levels struggle to boost UK output

Record employment levels struggle to boost UK output

11th Sep 17 9:31 am

UK unemployment rate lowest since 1975

The UK labour market is booming as unemployment hits a new 42-year low, according to the latest Business Trends Report by accountants and business advisers BDO LLP.

The new report shows that while firms are continuing to hire more staff, business output is stagnant, again highlighting the UK’s long-standing productivity problem. 

BDO’s Employment Index – which indicates firms’ employment intentions – has risen 0.1 from its July level to 104.6, indicating that expected growth in new jobs over the next few months should be well above its long-term trend. Hiring intentions have grown steadily for the last ten months, and this trend signals the continuing gradual strengthening of the UK labour market. In fact, according to official statistics, the 4.4 per cent unemployment rate is at its lowest in over 42 years, while workforce participation is at 75.1 per cent of those aged 16 to 64, the highest since records began in 1971. The strength of labour market demand is at a near record high with 768,000 advertised vacancies from May to July.

However, BDO’s Output Index – which indicates how businesses expect their order books to develop over the next three months – has remained stagnant at 95.1, very close to the point of contraction. The figures reveal the severe difficulty the UK economy is having boosting productivity during this period of economic uncertainty, which in turn is holding back pay growth.

Poor productivity has been a key factor in the UK’s low earnings growth over the last decade.  Against a backdrop of high inflation caused by the post Brexit vote sterling fall, household finances are feeling the squeeze. According to official statistics, prices of clothes, gas & electricity and food & non-alcoholic beverages have increased, somewhat offset by falling fuel prices. BDO’s Inflation Index now stands at 104.0 this month, 0.8 points lower than July. Despite this contraction, inflation expectations still remain well above the long-term trend, and therefore consumer spending growth is likely to stay subdued for the time being.

Commenting on the findings, Peter Hemington, Partner, BDO LLP, said: 

“These employment highs show that even in these uncertain times, businesses are really very happy to continue to hire. UK employment law is sufficiently elastic to give employers the comfort that they can flex workforces quickly as market conditions change.

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