Manufacturing sector crying out for new workers

15 February 2022

The FDF's economics policy manager Liliana Danila gives her reaction to the unemployment figures and what it means for the manufacturing sector.

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Omicron delivered only a temporary setback to the UK economy, with the number of payroll employees reaching a new record of 29.5m in January - well above pre-pandemic levels – according to latest labour market figures released by the ONS.

In December, regular wages rose by 3.6% year-on-year below December’s inflation of 5.4%, the third consecutive month when real incomes fell. Looking at the whole of 2021, regular wages rose by 5.1% and prices by 2.6%, allowing households to accumulate savings over the year, which should support consumption while real incomes decline. Nevertheless, less affluent households are less able to ride out the inflationary storm.

Vacancies also reached a fresh high of 1.3m, with almost all UK sectors reporting labour shortages. In the manufacturing industry (ONS does not disaggregate data at the level of food and drink manufacturing), there were 97,000 vacancies in January – an increase of 113% on the year and 80% compared to two years ago.

In August, we estimated there were 500,000 vacancies in the entire ‘farm to fork’ food supply chain. With vacancies rising persistently every month for the past year for most industries, it’s likely that there are now even more shortages. This month, the FDF launched a Skills Toolkit, that provides food and drink producers with advice on how to use the UK Government’s Plan for Jobs schemes to hire new workers.

A significant drop in the number of people willing or able to work is the main reason for the chronic UK labour market shortages. Since the start of the pandemic, it’s estimated there are 1.1m fewer people in the labour force as more people opted for early retirement and long-term illness not allowing some to work. These are structural issues, suggesting the labour market will remain tight for the medium term. Wage pressures are also likely to persist for the first half of the year.

Salaries for advertised positions in the food and drink sector in six regions in the east of England rose by about 20% in the second half of 2021. Wage pressures add to the myriad of increasing production costs: from higher prices of ingredients and raw materials to logistics and transportation costs. Unless producers pass on these cost increases, it will be more difficult for the industry to invest in training its labour force and technology to improve productivity.

Without a rise in productivity, wage rises will fuel inflation. The Bank of England rose its rate to 0.5% at its last meeting and, with the labour market in relatively good shape, it’s expected two more rises will follow, making borrowing and investment more expensive. Throw into the mix upcoming regulation and sustainability demands, it is critical the UK Government works with industry to support business to get through these uncertain times.

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