UK Labour Market Stabilizes Following Recent Job Losses: Signs of Recovery Emerge

The UK labour market is showing promising signs of recovery, stabilizing after a significant increase in job losses earlier this year. The job market turbulence was largely attributed to tax hikes introduced by Rachel Reeves, which took effect in April.

Unemployment and Payroll Statistics

In the three months leading to August, the unemployment rate rose slightly to 4.8% from the previous 4.7% in July, according to the Office for National Statistics (ONS). This increase was contrary to City economists’ expectations of a stable rate. Additionally, HMRC data indicated a reduction of 10,000 workers on company payrolls in September.

Despite these challenges, ONS revised its August figures to reveal a 10,000 increase in payroll employment, rather than the previously reported decline of 8,000, signifying stability within a workforce of 30.3 million.

Hiring and Wage Growth Trends

• Job vacancies dropped by 9,000, reaching 717,000 for the period ending in September, marking the second-smallest decline since mid-2022.
• Annual growth in regular weekly earnings fell slightly from 4.8% to 4.7%, aligning with economists’ forecasts.
• The private sector experienced its slowest pay increase in nearly four years at 4.4% annual growth, while the public sector saw a 6% rise.
• Total pay growth surprisingly increased to 5%, emphasizing resilience despite a cooling job market.

Economic Analysis and Predictions

Martin Beck, chief economist at WPI Strategy, noted that April’s rise in employer national insurance contributions, along with a significant increase in the national living wage, have impacted hiring. Yet summer statistics indicate the worst might be behind.

Challenges for Policy Makers

The ONS’s labour force survey data has been criticized due to low response rates, potentially leading to policy decisions being made on flawed data. Business leaders caution that expected tax hikes in the upcoming budget could hinder economic growth.

Calls for Policy Change

Business groups urge the chancellor to avoid raising taxes in the upcoming budget and promote economic growth. Alex Hall-Chen from the Institute of Directors stresses a change in policy is crucial for achieving growth targets and job creation.

Employment and Economic Outlook

Work and Pensions Secretary Pat McFadden highlighted record employment levels, while acknowledging many remain excluded from employment opportunities. Despite strong wage growth increasing inflationary pressures, it complicates potential interest rate cuts by the Bank of England.

Ali Webb from Capital Economics suggests that while the labor market loosens, wage growth remains slow, maintaining the Bank’s focus on inflation risks over economic activity.