Emeritus Professor Joe Nellis is Head of Economic Research at MHA, the accountancy and advisory firm.

The UK economy continues to bump along without any momentum as the unemployment rate remained unchanged at 4.9% in June, with weakness in job vacancies and slower wage growth pointing to a labour market that is considerably less tight than a year ago.

Average earnings growth excluding bonuses rose slightly to 3.5%, but wage pressures, which were once one of the Bank of England’s biggest concerns, are clearly moderating in the long term. For households, however, slower wage growth comes at an awkward time as many continue to face a cost-of-living crisis. The Bank of England has indicated that inflation will start to rise again during the autumn as a result of ongoing tensions in the Middle East, putting further pressure on real household incomes.

The position of younger workers remains a defining issue, with youth unemployment sitting worryingly high at around 15%. Persistently high unemployment among 16-to-24-year-olds risks damaging skills, future earnings and long-term participation in the labour market. It also comes against a backdrop of declining vacancies, making the first step into employment increasingly difficult.

For the Government, any new policy initiatives will have to move beyond simply protecting existing employment levels towards encouraging businesses to create new jobs and opportunities, particularly for young people. That means improving incentives to hire, expanding apprenticeships and technical skills programmes, and addressing the costs and uncertainties that discourage employers from recruiting younger workers. Reducing youth unemployment must be front of mind for policymakers ahead of Andy Burnham’s first Budget as PM in October.

For the Bank of England, the situation is more finely balanced. A weaker labour market and wage growth approaching 3% would normally strengthen the case for reducing interest rates. But with the Bank expecting inflation to rise to around 3.2% later this year before falling back, there is limited room for manoeuvre. Some analysts are concerned that a rise in inflation towards 4% is possible if the Middle East situation becomes worse – and this could result in a rise in interest rates.