UK labour market remains tight, but pressures begin to ease

While most measures suggest a tight UK labour market, the pass-through to wage growth has been weak. We expect labour demand to soften in 2023, which should loosen conditions in the jobs market and encourage the MPC to take a less hawkish approach than markets anticipate.

What you will learn:

• Tightness in the jobs market reflects a dip in labour supply, resulting from higher flows from employment to inactivity. This has been due to sickness, low net inward migration during the pandemic, and more people taking early retirement.
• While the impact of Covid should gradually fade over the medium term, we don’t see strong grounds for expecting labour supply to recover in the near term. That said, the deteriorating economic outlook means lower labour demand ought to lead to easing jobs market conditions.