UK labour market can’t hold out much longer against impact of stagflation

The fact that unemployment has started to rise suggests there are more painful days ahead

Britain’s economy is suffering from a textbook case of stagflation, and the symptoms are clear from the latest labour market trends. It looks like a complex picture. The number of people looking for work rose while the number of job vacancies fell. Hours worked in the economy were down while days lost through strikes in 2022 were the highest annually since 1989.

In fact, the diagnosis is straightforward. There was zero growth in the final three months of 2022 while the annual inflation stood at above 10%. Attempts by the Bank of England to reduce inflationary pressure through higher interest rates are feeding into lower levels of activity – but only slowly. There has been no sudden collapse of the sort seen during the global financial crisis of 2008.