UK Edition
Record NHS backlogs have forced hundreds of thousands of sick Britons to give up looking for work as an “alarming” exodus helped to push the jobless rate to its lowest since 1974.
The unemployment rate fell to 3.6pc in the three months to July, from 3.8pc in the previous quarter, according to the Office for National Statistics (ONS).
The ONS said the fall coincided with a shrinking workforce caused by rising long-term sickness and more people becoming students.
The economic inactivity rate – those not in employment or seeking work – rose 0.4 percentage points to a six-year high of 21.7pc. It is 1.5 percentage points higher since the start of the Covid-19 pandemic.
Experts said the increasing number of people suffering from long-term sickness was driven by NHS backlogs keeping people out of work and lingering long Covid.
The NHS waiting list has hit 6.8m and is not expected to peak until 2024.
James Smith, an economist at ING, said: “Alarmingly, the number of people classifying as not working due to long-term sickness is up by almost 400,000 since late 2019, and almost 150,000 in the last two months' worth of data alone.
“It’s hard to escape the conclusion that this is linked to the pressures in the NHS.”
Tony Wilson, director of the Institute for Employment Studies, said the rise in inactivity due to ill health should “sound alarm bells in the Government”. He warned that a smaller workforce would lead to weaker growth and higher inflation.
The last time unemployment stood at its current level was the start of 1974. Then, the Government introduced a three day working week to save electricity after coal miners went on strike and an oil crisis hit the global economy. The British economy was struggling with double-digit inflation and surging energy costs then too.
The ONS said pay continues to be squeezed by inflation, with average earnings dragged back to the same level as 2006 in real terms.
Real regular pay fell 4.1pc in the three months to July, despite wage growth picking up. Average earnings excluding bonuses jumped 5.2pc and rose 5.5pc when bonuses were included, but both failed to keep up with inflation. Inflation stood at 10.1pc in July and is expected to have remained in double digits last month.
Despite the squeeze, pay growth was higher than economists expected, suggesting that employers are still having to reward staff more to recruit or retain them.
Kitty Ussher, chief economist at the Institute of Directors, said worker shortages are “a very real concern” for businesses.
However, there were signs the labour squeeze was beginning to ease. The number of job adverts fell 34,000 to 1.3m in the three months to August, representing the biggest quarterly fall since the early stages of the pandemic.
Analysis by Deutsche Bank showed vacancies have further to fall to be consistent with a cooling jobs market.
“The labour market is running too hot,” said Sanjay Raja, an economist at Deutsche Bank.
Mr Raja said this suggested “the runway for rate hikes” by the Bank of England would “likely be a little longer than we previously envisaged”.
Bank of America added that Prime Minister Liz Truss's plan to cut taxes will likely take interest rates to 4pc next year, from 1.75pc today.
There was another quarterly rise in employment among the over-65s, even as the total number of people in work fell. 64,000 retirement age people joined the workforce, suggesting inflation is driving more older people to seek jobs.