High Migration Failing to Ease Tight UK Labor Market, Says S&P - BLOOMBERG
BY Bloomberg News,
Source: Office for National Statistics
(Bloomberg) -- Near-record levels of migration to the UK are failing to ease inflationary labor shortages because new arrivals often lack the skills employers want, according to credit ratings agency S&P Global.
Official data last week showed 672,000 more people moved to the UK than departed in the year to June, and thousands more than originally thought came in 2022. However, only a fifth of arrivals came for work, with students, dependants and refugees accounting for much of the rest.
These people, S&P said in a report, are unlikely to have the correct skills to fill the almost 1 million vacant positions in the UK. Its economists predict this will leave the labor market tight throughout 2024, “encouraging dynamic wage increases” and leading to inflation persistence.
“The tightness means that monetary policy will have to remain restrictive for longer to return the inflation rate to 2% on a sustainable basis,” senior S&P economists Marion Amiot and Boris Glass wrote in a note Monday.
Britain’s departure from the EU “introduced more friction and inefficiencies into its labor and product markets,” S&P said. EU migrants are now leaving the UK in greater numbers than they are arriving, according to the Office for National Statistics.
“The skill set of the non-EU immigrants is different and their participation in the labor market is lower,” Amiot and Glass added. “Many are students or refugees. Consequently, immigration does not necessarily help fill the gaps in industries where the workforce is lacking.”
UK Prime Minister Rishi Sunak is under pressure from his own Conservative party to slash migration numbers, a promise upon which the Tories were elected in 2019.
But a huge rise in the number of people who left the labor market during the Covid-19 pandemic, combined with Brexit, has left UK companies scrabbling for staff, and needing to import skilled workers from abroad.
The tightness in the labor market has forced employers to offer higher wages to attract workers, leaving interest rate-setters at the Bank of England worried about the risk of a wage-price spiral that keeps inflation well above the 2% target.
S&P thinks the BOE will now cut rates toward the start of the second half of 2024. Markets have almost fully priced in the possibility of a 25 basis point cut in August, despite pushback from several BOE officials in recent weeks who say it is too early to even consider monetary policy easing yet.