The UK labour market is experiencing a significant slowdown, marked by rising job losses and declining employer recruitment. In July, the number of employees on company payrolls fell by 8,000, reflecting a challenging environment for workers and employers alike. The latest data also revealed a slowdown in annual wage growth for the three months leading up to June 2023, a situation that poses considerable challenges for Chancellor Rachel Reeves as she aims to revitalize the economy.
The overall number of employees on company payrolls has decreased by 164,000 since the general election in July 2022. Despite the headline unemployment rate remaining stable at 4.7% during the three months ending in June, this figure is above the 4.2% rate that Reeves inherited, marking the highest unemployment level since 2021. Analysts attribute this downturn to a combination of a weak economic outlook and the implementation of a £25 billion increase in employer national insurance contributions (NICs) that began in April 2023.
Job Losses Concentrated in Vulnerable Sectors
Recent figures show that job losses are particularly concentrated in the retail and hospitality sectors. These industries, which often rely heavily on part-time and flexible contracts, are more susceptible to rising employment costs. Hiring intentions have also fallen to record lows as uncertainty surrounding the UK economy has intensified. Employers are grappling with various pressures, including the repercussions of Donald Trump‘s trade policies, stagnant consumer spending, persistent inflation, and high-interest rates.
In light of this challenging environment, the Bank of England recently reduced borrowing costs to 4%, although it cautioned that inflationary pressures are resurfacing, potentially delaying future cuts. The re-emergence of high inflation, projected to peak at 4% by September, threatens to diminish the real value of wages. While average earnings growth has remained surprisingly resilient, some analysts express concern that the point at which inflation outpaces wage growth is nearing.
The latest data indicates that real pay growth for regular earnings stands at 1.5%, while total pay, including bonuses, is at 1.1%. Economists predict that wage growth will continue to weaken, further straining household budgets in the coming months.
A Gradual Slowdown
Despite the rising job losses, there are signs that the worst impact of the NICs increase may have passed for many employers. Although the number of job losses has increased, it has not escalated to the extent anticipated by some employer groups. Data on HR1 advanced redundancy notifications, which companies must submit when planning to cut staff, has remained relatively stable in July.
While the UK labour market is indeed cooling, the pace is gradual. Economists maintain that this slowdown is not indicative of a collapse but rather a normalization process. The Bank of England’s cautious approach to further interest rate cuts reflects this measured change. For Chancellor Reeves, the current state of the labour market underscores the need for a carefully calibrated autumn budget to mitigate further harm to workers and the economy.
As the UK navigates this complex economic landscape, both policymakers and workers will be watching closely for signs of recovery or further decline. The challenges ahead will require thoughtful strategies to ensure a resilient labour market and sustainable economic growth.
