by Xinhua writer Zhang Yadong

LONDON, March 24 (Xinhua) -- Despite weak macroeconomic conditions this year, Britain's labor market has shown resilience.

On March 14, data released by the Office for National Statistics (ONS) indicated that Britain's economy contracted by 0.1 percent month-on-month. While the services sector managed marginal growth of 0.1 percent, both construction and manufacturing contracted, declining by 0.2 percent and 0.9 percent, respectively.

In contrast, the labor market has not loosened despite slowing economic growth. Data released on March 20 indicates that the trend of labor market easing is nearly over.

"Headline unemployment stood at 4.4 percent in the three months to January. Unemployment has stayed relatively stable in recent months, despite a notable decline in business sentiment and hiring intentions," said Yael Selfin, chief economist at KPMG UK.

From November to January, Britain's employment rate stood at 75 percent, marking an increase from both the same period a year ago and the previous three months.

Meanwhile, wages continued to rise, with average earnings excluding bonuses up 5.9 percent year-on-year. And total earnings, including bonuses, climbed 5.8 percent.

The contrast between Britain's sluggish macroeconomic performance and its resilient labor market can be attributed to the country's high level of economic inactivity. The economic inactivity, according to ONS standards, refers to the proportion of people who are neither employed nor actively seeking work.

"The UK's unemployment rate was, unsurprisingly, steady at 4.4 percent in January. This sounds like a robust number, reflecting a resilient and high-performing economy, but things are not as they seem," said Harry Mills, founder of Oku Markets Limited.

The unemployment number is that it only captures those individuals actively seeking work, making it nearly "pointless," said Mills. "The economic inactivity rate was 21.5 percent. A fifth of working-age people aren't working -- that's the number we should focus on."

On the other hand, businesses in Britain face real difficulties hiring workers, as reflected in the continuous rise in employee wages.

"The labor market remains a significant challenge for employers who are struggling with skills shortages, higher wage costs and the imminent hike in employment taxes," said Jane Gratton, deputy director of Public Policy at the British Chambers of Commerce, commenting on the latest labor market data.

"While the rise in average earnings is slowing, it continues to add huge cost pressures to business, underlining the competition between firms to attract and retain the right talent," she added.

This helps explain why Britain's labor market remains resilient despite sluggish economic growth. While this stability has kept unemployment from rising sharply, it has also driven up wages, constraining the central bank's flexibility in adjusting monetary policy.

On March 20, the Bank of England announced the decision to maintain its benchmark interest rate at 4.5 percent. Andrew Bailey, governor of the central bank, cautioned that rising wages are likely to fuel inflationary pressures in the coming months.

The central bank now projects Britain's inflation rate to reach 3.75 percent by the third quarter of the year, higher than the 3.5 percent estimated in February.

Given the labor market's resilience, the bank may push back its next rate cut significantly. Some institutions now forecast the first rate cut could be delayed until August, rather than the previously expected May.

Raj Badiani, an economist at S&P Global Market Intelligence, said, "The foundations of medium-term price stability are not secure. Therefore, the Monetary Policy Committee of the BoE is likely to tread carefully about the timing of the next rate cuts."

The British government has begun addressing structural issues in the labor market, including the persistently high economic inactivity rate. Recently, it announced welfare system reforms, reducing benefits for individuals with disabilities and long-term illnesses while promoting workforce participation.

Data indicate that one in 10 working-age individuals in Britain is receiving disability or sickness benefits, while nearly 1 million young people are neither in education, employment, nor training. Enditem

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