UK Interest rates rise

2nd August 2018 by microdec

The Bank of England has raised interest rates, for only the second time in ten years, moving a quarter of one percent from 0.5% to 0.75%.

The banks expectations of a strengthening economy, strong employment, low unemployment and rising wages have all played a part in the decision to keep inflation under control.
With the outcome of Brexit talks still unclear, a cloud of doubt hangs over the nation, so it’s generally accepted that another increase like those seen in the US is unlikely in the short term – but this increase could be enough of a tonic to encourage investors to continue to invest in UK banking despite the European uncertainty.

The effect on the rest of the economy will be a matter for debate. The British Chamber of Commerce has expressed dissatisfaction with the Bank of England's decision, suggesting that it could undermine the confidence that currently exists.

So what does this mean for recruitment?

The candidate shortage continues, particularly in social care, hospitality, education, agriculture and construction.

The UK jobs market remains strong. Employment is at 75.7%, the highest level since records began in the 1970’s.

In the short term, with UK productivity relatively weak and unemployment low, the Bank of England appears to believe that this will lead to increased wages. The government's recent decision to drop the 1% public sector pay cap could also potentially add to wage inflation across the rest of the economy.

However, in his press conference, Mark Carney spoke about "uncomfortable new normals" for the jobs market and the broader economy in the longer term; pointing to a much slower growth in living standards, slower growth in productivity, and low pay growth - all combining to create economic growth of around 1.5% per year, which is well below the 2.75% to 3% seen before the financial crisis. According to BBC analysts, these factors suggest that even a modest expansion will be enough to warrant further interest rate rises, which has in the past led to slower employment growth.

As always, the recruitment industry will need to play a flexible role, by being agile enough to support their clients in any economic situation. Productivity, differentiation and quality of service remain key.

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