Thanks to the Bank of England, and a 4.25% ridiculously high interest Base Rate
Causing a record 4.7% unemployment, 25,000 lost jobs in June following 41,000 lost jobs in May!
The UK’s consecutive job losses over the past five months (as reported by the ONS ) stem from a complex interplay of several persistent economic headwinds:
1. **High Interest Rates & Tight Monetary Policy:**
* The Bank of England (BoE) raised interest rates aggressively (to a 16-year high of 5.25%) to combat inflation. This significantly increases borrowing costs for businesses.
* **Impact:** Businesses postpone investments, scale back expansion plans, and cut costs, with labour often being the largest expense. Higher rates also dampen consumer spending on credit, reducing demand for goods and services.
2. **Persistent, Though Falling, Inflation:**
* While inflation has fallen significantly from its peak (down to the BoE’s 2% target as of May 2024), its *lingering effects* are crucial.
* **Impact:** Businesses faced soaring costs for energy, raw materials, and wages for a prolonged period. Even as inflation cools, profit margins remain squeezed. To protect profitability, companies reduce headcount. High inflation also eroded real wages, reducing consumer spending power.
3. **Cost-of-Living Crisis Squeezing Demand:**
* High inflation severely eroded household disposable income for nearly two years.
* **Impact:** Consumers cut back on discretionary spending (eating out, retail, entertainment, big-ticket items). Sectors reliant on consumer spending (retail, hospitality, leisure) are particularly vulnerable to job cuts when demand falls.
4. **Economic Stagnation & Weak Growth Outlook:**
* The UK experienced a technical recession in late 2023 and growth remains very weak or stagnant.
* **Impact:** Businesses facing stagnant or declining sales and an uncertain future outlook become cautious. Hiring freezes turn into job cuts as a way to conserve cash and weather the downturn. Investment plans are put on hold.
5. **Low Productivity Growth:**
* The UK has a long-standing issue with stagnant productivity growth.
* **Impact:** When productivity growth is low, businesses struggle to increase output without proportionally increasing labour costs. During downturns, this can make job cuts seem like a necessary step to maintain competitiveness, rather than investing in efficiency gains.
6. **Global Economic Uncertainty & Geopolitical Tensions:**
* Ongoing conflicts (e.g., Ukraine, Middle East), global supply chain pressures, and slowdowns in major economies like the EU and China create a challenging international environment.
* **Impact:** This uncertainty makes UK exporters cautious and can dampen foreign investment, contributing to a weaker domestic economy and job market.
7. **The Lingering Shadow of Brexit:**
* While not the *primary* driver of the *current* monthly job losses, Brexit added friction to trade with the UK’s largest market (EU), increased administrative burdens, and contributed to labour shortages in specific sectors (though net migration is high overall). These structural changes create underlying inefficiencies that can exacerbate downturns.
**How these factors interact:**
* High inflation forced the BoE to raise rates aggressively.
* High rates stifled business investment and consumer spending.
* Weak spending and high costs squeezed business profits.
* Squeezed profits + uncertain outlook + high borrowing costs = businesses cutting costs, primarily through reducing labour (layoffs, hiring freezes, reduced hours).
* Global uncertainty and structural issues (like low productivity) amplify these pressures.
**In essence:** The job market is responding to the delayed effects of high inflation and the BoE’s medicine (high rates) to cure it, combined with underlying economic weakness and global uncertainty. Businesses are retrenching to protect profitability in a challenging environment of weak demand and high costs.
The situation remains fluid, and future job market trends will depend heavily on the pace of inflation decline, when the BoE starts cutting rates, and whether consumer and business confidence recovers.