UK jobs market feels the chill

• Unemployment jumps to 4.2%
• Vacancies fall for the 21^st consecutive month
• Economic inactivity tops 22%

"For months we've been watching cracks begin to form in the UK jobs market as the post pandemic boom faded and the cost-of-living crisis forced businesses to retrench.

"Vacancy numbers have fallen again and again, and though they're still above where they were before Covid lockdowns the fact that unemployment has also been rising suggests a huge disconnect between the jobs available and workers free to fill them. The skills gap is nothing new and there never has been a quick fix, but with economic inactivity also surging over 22% it is a problem that's becoming increasingly important.

"How can the UK economy grow if its businesses are held back because they can't find the workers they need to expand and fulfil their potential? Without that growth the current economic torpor will become endemic and the growing pressure on the public purse will leave few options other than tax hikes to balance the books.

"Some workers, particularly younger workers, feel they've been left behind. They don't have what employers want, and as fewer vacancies that might suit become available, they are likely to feel even more isolated and abandoned.

"Retail and hospitality in particular have suffered from rising prices and falling consumer confidence. These sectors often provide entry points into work for young people and with more high street closures on the cards over the coming months it does feel like the labour market has passed a tipping point.

"There have been big questions asked about how much we can rely on ONS jobs figures, and they are always backwards looking. But when you consider the latest trading updates from recruiters PageGroup and Robert Walters you can see a clear picture developing. Recession might be short lived, but employers have had their confidence shaken and with the cost of borrowing so high many will have put off expansion plans until they can see past the current volatility.

"Price pressures have been acute, and wages have played a big part. Wage growth may have cooled once again which will be welcome news to Bank of England rate setters, but when adjusted for inflation the UK workforce is enjoying its biggest pay rise in almost two and a half years.

"What will that extra 2.1% mean to inflation? That's something that will be watched closely, but for employers the fact workers are finally feeling the benefit of those increases takes the pressure off when it comes to the next round of negotiations.

"The big question for us all is whether the cool wind blowing through the labour market will be enough to persuade MPC members that the time has come to cut interest rates. Looking at market expectation there's certainly a growing hope that a June cut might once again be back on the table, even if the US Fed is a step or two behind."