The UK labour market has recovered impressively but isn’t at risk of “overheating”, as claimed by economists quoted in write-ups of this week’s data.

The number of payrolled employees is at a record but this partly reflects a large number of self-employed people switching to employee status during the pandemic. The comprehensive Labour Force Survey measure of employment remains 600,000 below its peak – see chart 1.

Chart 1

The unemployment rate for the 16-64 age group of 4.2% is almost back to its pre-pandemic low of 3.8% but has been suppressed by a rise in inactivity, which is 1.2 pp higher as a share of the labour force, i.e. the jobless rate would be 5.4% if inactivity had remained stable – chart 2.

Chart 2

High inflation is putting upward pressure on wage settlements but the six-month growth rate of regular earnings (i.e. excluding bonuses) is currently no higher than in mid-2019, at 3.7% annualised – chart 3.

Chart 3

Weak / negative real money growth is likely to be reflected in a loss of economic momentum, implying labour market cooling – chart 4. Vacancies lead and may be peaking – chart 5.

Chart 4

Chart 5