The TUC has urged the Bank of England to refrain from increasing interest rates due to concerns of potential job losses and the risk of recession in the UK. The TUC highlighted that employment had declined in over half of the country’s 20 industrial sectors in the three months leading up to June. They warned that an increase in borrowing costs would put tens of thousands of livelihoods at risk. The call to the Bank followed a day of weak results in the manufacturing sector, which caused the pound to weaken against the US dollar and the euro.
According to recent labour market data from the Office for National Statistics, overall employment increased by 33,000 in the three-month period, but the TUC emphasized significant job losses in sectors such as accommodation and food (34,000), wholesale and retail (27,000), and construction (17,000). The TUC attributed 120,000 job losses to various industries, with the high interest rates being one of the contributing factors.
The Bank of England’s monetary policy committee has raised interest rates at each of its last 13 meetings, increasing the official borrowing cost from 0.1% to 5% since December 2021. It is widely expected that there will be a 14th rise in rates on Thursday. TUC general secretary, Paul Nowak, voiced concerns about the potential for another interest rate increase, stating that it could harm households, businesses, and result in the loss of many thousands more jobs. He deemed it reckless and irresponsible to set the country on a path toward another economic shock.
Fears of a recession were amplified after the manufacturing sector experienced a further decline last month. The purchasing managers’ index released by S&P and the Chartered Institute of Procurement and Supply reported that factory output, new orders, and employment all contracted at an accelerated rate in July. The index fell from 46.5 in June to 45.3 in July, indicating a decline in output. Cash-strapped companies were reducing purchases and depleting their stocks to save money.
Rob Dobson, director at S&P Global Market Intelligence, commented on the UK’s manufacturing downturn, stating that output fell at the fastest pace since January due to overstocked clients, increasing export losses, higher interest rates, and a cost of living crisis intensifying the slump in demand. Fhaheen Khan, senior economist at Make UK, warned that the economy is heading towards anaemic growth and a potential recession, despite the easing of supply disruptions and optimal industry capacity.
The manufacturing PMI for the eurozone also recorded a lower reading than that of the UK, dropping from 43.4 in June to 42.7 in July. Speculation that the Bank of England will moderate the pace of interest rate increases following a half-point rise in June has led to the pound trading at a three-week low against the dollar and the euro.