Vicky Redwood, UK economist at Capital Economics
The further improvement in the UK labour market figures is impressive given that the economy may not even be out of recession yet. Particularly surprising is the fact that employment actually rose in the three months to September, the first increase since May 2008. Although an increase in the workforce still pushed unemployment up, the 30,000 rise was pretty minimal compared to the increases we were seeing earlier this year. And the number of people claiming unemployment benefit in October rose by just 12,900, the smallest rise yet in this recession.
All good news then – but will it last? After all, productivity has been hammered in this recession, suggesting that there should be plenty of scope for firms to raise output by working existing employees harder. So even if employment doesn't start to fall again, we doubt that it will start to rise significantly for a number of years. What's more, the previous rise in unemployment is still putting downward pressure on pay – the annual growth rate of average earnings including bonuses fell from 1.5% to 1.0% in September. The labour market's not out of the woods yet.
Colin Ellis, European economist at Daiwa Securities SMBC
The news was encouraging, with the headline unemployment figures coming in below expectations. Claimant count unemployment rose by just 12.9K in October - the slowest pace of increase since May 2008 - and the headline ILO measure of unemployment held still at 7.8% in the three months to September, unchanged from Q209. As such, today's figures provided further confirmation that the UK labour market is holding up much better than expected - fewer jobs are being lost than in past recessions, given the sharp contraction in the economy.
However, delving behind the headline figures, there are still signs of a soft underbelly in the labour market. While ILO unemployment rose by just 30K in Q309, that was matched by a 30K rise in workers who had been forced to take part-time jobs, as full-time work was not available - and exceeded by a 34K rise in temporary employees who could not find permanent posts. Furthermore, the number of people classified as inactive, but who wanted a job, soared by 100K in the third quarter.
Adding up these four groups means that an extra 195K people were wanting or looking for jobs, or had been forced to settle for what they could get.
Richard McGuire, fixed income strategist at RBC Capital Markets
These data, while continuing to point to ongoing weakness, provide some clear hope the labour market is now in the process of levelling out after its recent nosedive. A stabilisation of the jobs market is crucial both in terms of breaking the ongoing logjam in consumer credit and, by extension, helping to lift some of the gloom from the UK's growth outlook.
However, a continued poor fundamental outlook (the ongoing need for household balance sheet repair, the downward pressure on investment arising from the sizeable output gap, limited external demand) and the looming prospect of fiscal tightening (which stands to bear down on demand in general but also directly weigh on jobs and earnings) mean we will not be able to confidently sound the all clear on the labour market front for some considerable time yet.
Hetal Mehta, senior economic advisor to the Ernst & Young Item Club
It seems the labour market deterioration is continuing to slow, and the peak in unemployment will be lower than previously anticipated. Despite the scale of the economic downturn, we have seen a high degree of resilience compared with other recessions.
The flexibility of the labour market is allowing firms to reduce wage costs meaning they can limit the number of jobs they need to shed. But the further weakening in average earnings growth will continue to put pressure on households to rein in non-essential spending.
Howard Archer, chief UK economist at IHS Global Insight
All in all, a welcome boost for recovery prospects, although consumer spending is still likely to be limited by low earnings growth. This weakened further in September, which is hardly surprising given elevated unemployment, the need for companies to contain their costs in the face of still muted demand and reduced profitability, and negative retail price inflation (many pay increases are still linked to this measure of inflation).
Despite the improved latest labour market data, the suspicion remains that modest job shedding will persist for some time to come. Even if the economy does finally return to growth in the fourth quarter as seems probable, activity is still unlikely to be strong enough in 2010 to prevent further net job losses. Doubts and concerns over the strength and sustainability of any recovery are likely to encourage businesses to keep their labour forces as tight as possible. In addition, significant job cuts in the public sector could well start next year as part of the efforts to rein in public expenditure.
