The dual threat of the Omicron variant and strict restrictions on daily life to curb its spread will smash the UK jobs market, City economists warned today.
Measures to cut Brits’ social contact in a bid to quash the new coronavirus strain, including being encouraged to work from home, will hit retail, leisure and hospitality businesses.
The government’s “Plan B” measures will “bring the strong run of labour market data to a halt over the next few months, particularly if consumers become more reluctant to engage in social consumption activities,” warned Martin Beck, chief economic advisor at the EY Item Club.
The alert came as a fresh jobs print indicated the UK labour market is effectively weathering the shock of the end of the furlough scheme.
Payrolled employee volumes jumped over 250,000 over the last month, and the unemployment rate edged back to 4.2 per cent, according to the Office for National Statistics (ONS).
Wages, including one off bonuses, grew 4.9 per cent, higher than the latest 4.2 per cent inflation estimate.
The strong jobs print underlines the upward trajectory the UK economy was on before emergence of the Omicron strain.
An uptick in payrolled employees “provides reassurance that formerly-furloughed staff were not simply serving notice periods in October, but have been kept on permanently,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
However, with tougher virus measures fuelling greater consumer reticence to head out and socialise, unemployment is set to rise over the coming months as firms pull back from hiring, warned Paul Dales, chief UK economist at Capital Economics.
“The surge in Omicron cases and any further tightening in restrictions may reduce the demand for labour in December and January,” he said.
The possibility of a flow of new variants emerging causing a constant ebb between an easing and tightening restrictions over the coming year will prompt consumer facing firms to shrink staff levels, Tombs warned.
Britain’s biggest business group urged the government to step in if tough virus curbs wreak havoc on firms most susceptible to large swings in demand.
Matthew Percival, director of employment at the Confederation of British Industry, said: “With Plan B coming in, the net effect is that demand in some sectors will be suppressed. Those sectors hardest hit must be closely monitored as further targeted support may yet be needed.”
Robust employment data would have been enough to coax the Bank of England into hiking interest rates at its meeting on Thursday, experts said.
However, uncertainty over the potential impact Omicron could have on the economy will cause the Bank’s rate setting committee to hold fire and leave rates unchanged at a record low 0.1 per cent.