My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

My attention was grabbed a few days ago by a company news report in The Times, headlined “Marshalls to cut 250 jobs and close factory after profit warning.” You may ask why. It was because announcements of job losses, which at one time used to be commonplace, have became as rare, if not as hen’s teeth, then as glorious days this summer.

On closer examination, Marshalls, which makes building materials, had in its trading update on July 31, and reported “challenging market conditions” in the first half of the year, driven by “persistent weakness” in new housebuilding and repair and maintenance of private houses. Having expected a recovery in the second half, it now did not, and was cutting 250 jobs (in addition to a 150 reduction in the second half of last year) and closing a factory in Scotland.

One of the factors cited by Marshalls was rising interest rates and, to nobody’s surprise, the Bank of England increased the dose on Thursday, increasing the official interest rate from 5 to 5.25 per cent. This, the 14th hike in a row, took the rate to its highest in a decade and a half. It is striking to think that Bank Rate now is higher than in 2003, a year when the UK economy grew by more than 3 per cent.

New gross domestic product (GDP) figures will be published this week but something extraordinary would have to happen if they change the current anaemic picture. In May, the latest figures, monthly GDP was 0.4 per cent below May last year. The big picture is one of stagnation.

With interest rate rises biting – look too at the latest results from the housebuilder Taylor Wimpey – and the economy stagnant, the surprise is how resilient the labour market has been. Job cuts, as I say, are a rarity these days, with most headlines about worker shortages and recruitment difficulties The unemployment rate has crept up from a low of 3.5 per cent last summer to 4 per cent now, but that largely reflects a fall in economic inactivity, and the return of some people – not all – to the job market.

Employment slipped fractionally in the latest three months, and is a touch below pre-pandemic levels, but it has recovered well, rising by 190,000 over the latest 12 months (to just over 33 million) and by more than 900,000 from its post-pandemic lows.

Employers have been desperate to recruit in a tight labour market, and to hang on to those workers that they have. The fact that they have been doing this during the present period of economic stagnation has meant, as a former member of the Bank’s monetary policy committee (MPC) pointed out to me the other day, that productivity has been taking the hit so far, rather than employment.

Sure enough, the latest official figures show that productivity, measured by output per hour, has fallen more over the past year than at any time since 2013. It was already disturbingly weak. Output per worker, another way of measuring productivity, fell even more.

Can this possibly continue? The latest readings for manufacturing, the purchasing managers’ index (PMI), suggest that the sector is weaker than at any time since May 2020, when the economy was in the first Covid lockdown, the most economically damaging of the three that were imposed.

And, while it has not been making the headlines, the PMI suggests that manufacturing employment has been falling for the past 10 months in a row, and that the pace of job cuts accelerated last month as the sector’s downturn deepened. That is not yet borne out by official figures, which suggest manufacturing employment has plateaued rather than fallen, but something is happening.

The UK is not, of course, mainly a manufacturing economy these days, for which some would say more the pity. It accounts for less than a tenth of GDP and less than a tenth of employment. Something is also happening in the service sector, however. Its PMI also fell sharply last month, and the pace of job creation eased “amid reports of some hiring freezes”. One service sector firm, the retailer Wilko, has served a notice of intention of calling in administrators, potentially putting 12,000 jobs at risk, and has already shed 400.

Is the job market on the turn? There is other evidence, albeit so far not conclusive. Job vacancies have fallen by 265,000 or more than 20 per cent over the past year, though remain high by past standards. Online job advertisements this month are down by 10 per cent on a year ago according to Adzuna.

The Bank, in the latest monetary policy report forecasts, sets the scene for a significant loosening of the job market in predicting very little economic growth over the next two years; just 0.3 per cent a year, which is only narrowly on the right side of recession. It also predicts a rise in the unemployment rate to 4.8 per cent, equivalent to an increase of about 300,000 in the number of people unemployed.

What mainly comes over from the report, however, is that the Bank is still struggling to get to grips with what is happening in the labour market. There is a lot of the two-handed economist” – on the one hand, on the other – in its report. So, the job market could remain tighter for longer or loosen quite abruptly. That uncertainty is reflected in the range of its projections, illustrated in what is known as a fan chart, which could have the unemployment rate rising to a very high 8 per cent, or falling to a very low 2 per cent. Neither are likely. Neither are impossible.

The uncertainty is perhaps forgivable. If firms persist with labour hoarding, or even increase it when they can get hold of staff, the labour market stays tight, and the Bank would worry even more about pay growth. But then again “the labour market could loosen more rapidly than assumed … because of downside risks to demand”.
It looks to me as if the second of these possibilities is starting to happen. In sectors most immediately hit by the impact of higher interest rates, most notably housing and also manufacturing, the tide has started to turn. Elsewhere in the economy, the reality of negligible growth and the delayed impact of those 14 interest rate hikes will bite harder.

The unusual circumstances of the past couple of years, when there have been not enough workers to go around, will be replaced by a more familiar position in which there is some slack in the labour market which, after all, is one of the things that higher interest rates are intended to achieve. It does not mean that we will return to the very high unemployment rates of the past. Demographic factors, higher inactivity due to ill-health and a change in the nature of immigration will ensure that. It should mean that, in time, the Bank will have to stop worrying so much about pay.