More job vacancies than workers for the first time on record – live updates

Kitty Ussher, chief economist at the Institute of Directors, argues the latest jobs figures highlight the need for a workplace skills policy.

The unemployment rate is now lower than at any time since the early 1970s. Combined with half a million more vacancies in the economy than before the pandemic, there are plenty of job opportunities for people who are looking for them.

This is good news for households but it causes difficulties for businesses trying to retain staff and recruit for the right skills: our surveys show a massive 42pc of firms citing ‘skills shortages’ as having a negative impact on their organisation.

This morning’s data puts the onus on government to prioritise workplace skills policy, to ensure firms have access to the talent they need.

The FTSE 100 has started the day on the front foot despite the latest jobs data highlighting the tight labour market and squeeze on living standards.

The blue-chip index rose 0.2pc at the open to 7,480 points.

Derrick Dunne, chief executive of YOU Asset Management, says all eyes will be on the Bank of England’s next move.

While this might be good news for job-seekers, the number of vacancies, coupled with a record number of job-to-job moves, highlights the pace at which the labour market is tightening month on month. 

This is problematic for two reasons. Firstly, a hoard of companies unable to build out their workforce could lead to falling output and, in turn, falling revenues. Elsewhere, fewer candidates puts firms under huge pressure to hike salaries in a bid to prevent existing employees from being enticed away by competitors.

Neither scenario is conducive to future economic growth, which was already shown to be waning in last week’s GDP release.

What’s more, today’s data shows that wage growth continues to lag behind inflation, setting the chances of the UK descending into a dangerous wage-price spiral ever-higher.

With analysts now forecasting that inflation will surge to 9.2pc tomorrow, the real question is what The Bank of England’s next move will be in the face of this enormously complex and multi-faceted challenge.

Thomas Pugh, economist at RSM UK, says the jobs and pay figures show the labour market is continuing to tighten.

Combined with soaring inflation, this will probably be enough to convince a majority of members on the Monetary Policy Committee (MPC) to vote for further rate hikes at the next meeting on 16 June.

However, economic growth is likely to slow sharply in the second half of the year, which will dampen demand for labour and help to ease some the tightness, so June might be the last hike until towards the end of the year.

Admittedly, much softer economic growth in the second half of the year, due to the cost-of-living crisis, will dampen demand for labour and ease some of the tightness in the labour market. However, we think the smaller pool of available workers will keep the labour market tight for at least the next couple of years.

The tightness in the labour market was reflected in a rise in pay growth from 5.4pc in the three months to February to 7pc in the three months to March. The single month figure was even more impressive rising by 9.9pc.

Admittedly, that was driven by exceptionally strong bonuses. Excluding bonuses pay growth was a more muted 4.2pc.

But that is still well above its pre-pandemic level of about 3pc and will likely make the MPC even more concerned that the recent burst of high inflation is starting to be reflected in wages. Indeed, the MPC will probably use the strength in pay growth as the main justification for raising interest rates again next month.

However, real total pay growth, which takes inflation into account, grew by a much more muted 1.4pc, suggesting that the cost-of-living crisis was starting to bite in March and will only get worse as inflation jumps in April.

My colleague Tim Wallace has dug further into the data to reveal a record jump in pay in March…

Pay packets jumped almost 10pc in March to beat surging inflation, preserving workers’ living standards but raising fears that a dangerous wage-price spiral is taking hold in the economy.

Earnings the month shot up by 9.9pc on the year, the Office for National Statistics said, with bonuses in the finance and construction industries helping pay packets keep up with the cost of living.

That is the sharpest single-month jump on records dating back to 2001. By contrast inflation is at a 30-year high of 7pc.

It comes after Andrew Bailey, the Governor of the Bank of England, warned of “second-round effects” from inflation, when a wave of price rises such as the energy bills shock feeds through the rest of the economy with higher wages and so further price rises in turn.

Pay in finance is up just over 15pc, driven by a rise in bonuses of almost half. Construction incomes are up 9.6pc, amid a surge in bonuses of more than 75pc. 

Retail, wholesale and hospitality staff have benefitted from a more than 11pc rise in incomes.

Private sector incomes overall were up 11.7pc, the ONS said, even as the average public sector worker’s pay packets rose 1.6pc.

Paul Dales, chief UK economist at Capital Economics, says the tight jobs market may force more interest rate rises by the Bank of England.

The labour market has remained stronger than expected even though the economy has been weaker than anticipated. This supports our view that the Bank of England will have to raise interest rates further than widely expected, perhaps from 1pc now to 3pc next year.

It is tempting to dismiss the jump in the three-month rate of annual earnings growth from 5.6pc in February to 7pc in March due to a one-off leap in bonus payments in the financial sector that has no significance. Earnings growth excluding bonuses only nudged up from 4.1pc to 4.2pc.

But anecdotal evidence suggests that businesses have been raising bonuses to maintain staff, so it is probably another sign of how the tight labour market is feeding into faster wage growth.

Our view that the labour market will remain tight and wage growth will accelerate further even as the economy flatlines or contracts in the next few quarters explains why we think the Bank will have to raise interest rates to 3pc to contain this domestic inflationary pressure.

Darren Morgan at the ONS says there’s a mixed picture for the UK labour market.

Total employment, while up on the quarter, remains below its pre-pandemic level. Since the start of the pandemic, around half a million more people have completely disengaged from the labour market.

However, job vacancies are still rising, reaching yet another record high. Indeed, with the latest fall in unemployment, to its lowest rate since 1974, there were actually fewer unemployed people than job vacancies for the first time since records began.

Continued strong bonuses in some sectors such as construction and especially finance mean that total pay is continuing to grow faster than prices on average, but underlying regular earnings are now falling sharply in real terms.

Good morning. 

There are now fewer unemployed people than job vacancies in the UK for the first time ever, highlighting the crisis gripping the labour market as the cost-of-living crisis deepens.

The unemployment rate dropped to 3.7pc in the first three months of the year – below economists’ forecasts and its lowest since 1974.

But hundreds of thousands of people dropped out of the workforce during the pandemic, meaning companies are struggling to fill roles. They may offer higher wages to attract talent, which in turn could fuel inflation.

That said, adjusted for inflation, average earnings excluding bonuses dropped 1.9pc from a year earlier – the biggest fall since 2013 – as the squeeze on living standards deepens.

5 things to start your day 

1) Bank of England fights to save its reputation – and the economy  Tory assault on Threadneedle Street comes as inflation exposes chinks in its armour 

2) Elon Musk suggests he could pay a lower price for Twitter  Concerns mount as chief Parag Agrawal defends platform’s strategy against bots 

3) ‘Serious breach’ piles more pressure on embattled SFO  High Court ruling over mining firm investigation rocks fraud investigators 

4) British telecoms giants accused of plotting to destroy Phones4U  Bosses at EE, Vodafone and O2 had “nakedly anti-competitive” conversations with each other, London’s High Court hears

5) Treasury plots carbon tax raid on imports  Measure part of efforts to prevent British jobs going abroad to countries more tolerant of emissions

What happened overnight 

Hong Kong stocks opened higher on Tuesday despite Wall Street stocks finishing mostly down on weak Chinese economic data.

The Hang Seng Index climbed 1.3pc. The Shanghai Composite Index opened down 0.09pc, while the mainland’s second exchange, the Shenzhen Composite Index, sank 0.4pc.

Tokyo shares rose in morning trade, with the benchmark Nikkei 225 index opening in negative territory but quickly climbing 0.2pc. 

Coming up today

• Corporate: C&C Group, DCC, Land Securities, Vodafone (full-year results); Britvic, Imperial Brands, Tritax EuroBox (interims); TI Fluid Systems (trading update)
• Economics: GDP (EU), unemployment rate (UK), claimant count change (UK), retail sales (US)