UK Jobs Market Slows Down: More People Unemployed, Wages Grow Slower

The UK's job market is slowing. More people are looking for work, and pay is not growing as fast. Businesses seem more careful about hiring new staff.
By Newsroom | UK Economy, Labour Market |

The United Kingdom's job market is exhibiting a notable cooldown. Official figures indicate a rise in unemployment rates, reaching levels not seen in several years, while the pace of wage growth has decelerated. This shift occurs against a backdrop of cautious hiring by businesses and signals potential shifts in economic policy.

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Employment Figures Decline Amidst Easing Wage Pressures

Recent data from the Office for National Statistics (ONS) reveals a weakening in the UK's labour market over the past year. The number of people employed has seen a decline, with sectors such as retail and hospitality reporting job losses. This trend is accompanied by the slowest private sector wage growth in approximately five years. While job vacancies have seen a slight uptick, their overall numbers have remained relatively flat after a sustained period of decrease. Employers appear more hesitant to retain staff or advertise new positions, a sentiment some attribute to recent changes in employer-funded National Insurance contributions and minimum wage adjustments. Simultaneously, an increasing number of individuals are entering the workforce.

Read More: UK Jobs Get Harder to Find, More People Unemployed

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Unemployment Rate Edges Upward

The unemployment rate in the UK has climbed, with recent figures indicating a rate of 5.1% between September and November, marking the highest level since early 2021, a period when the world was still dealing with the COVID-19 pandemic and its associated lockdowns. This represents a significant increase from previous periods. Particularly, younger workers, aged 18 to 34, are experiencing higher unemployment rates at 8.7%, suggesting diminished employment prospects for graduates and those at the early stages of their careers.

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Wage Growth Moderates Across Sectors

Average earnings growth has shown a marked slowdown. In the three months to October, average earnings growth slipped from 4.9% to 4.7%. Regular pay, excluding bonuses, also decreased from 4.7% to 4.6%. Several private sector industries, including finance, business services, and construction, have seen wage growth fall below 3%. This level is considered by the Bank of England to be consistent with their target of returning inflation to 2%. Public sector wage growth, however, has remained elevated, largely due to pay awards being implemented earlier than in previous years.

Read More: UK Interest Rates Might Be Cut Soon as More People Are Unemployed

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Economic Indicators and Policy Implications

The current labour market data suggests a cooling economy, which may influence decisions regarding interest rates. With wage growth easing, economists suggest this strengthens the case for the Bank of England to consider further interest rate cuts. Bank governor Andrew Bailey has indicated he is awaiting further confirmation of a sustained downward trend in inflation before making such decisions. The prospect of cooling wage growth alongside rising unemployment presents a mixed economic outlook, reflecting both efforts to reduce inflation and the emergence of risks related to a broader economic slowdown.

Business Sentiment and Hiring Practices

Employers are exhibiting increased caution regarding hiring and retention. Factors such as budget uncertainty and slowing economic momentum are believed to be weighing heavily on these decisions. The rise in unemployment underscores growing pressure on businesses amidst stalling economic growth. This cautious approach by firms, coupled with policies that increase labour costs, may be contributing to the current state of the job market. Vacancy numbers have also fallen significantly from pre-pandemic levels, indicating a reduced appetite for hiring.

Analysis of Labour Market Data

Official statistics from the ONS form the basis of these observations. However, some sources note that the labour force survey, a key component of this data, has faced challenges with declining response rates, prompting caution in interpreting the figures. Despite these potential limitations, the general trend indicates a weakening labour market. Economists highlight that the easing of pay pressures is a significant development, potentially paving the way for monetary policy adjustments.

Conclusion and Future Outlook

The UK labour market is currently characterized by a combination of rising unemployment and decelerating wage growth. This trend, particularly the slowdown in private sector pay, has significant implications for inflation and monetary policy. While the precise reasons for these shifts are multifaceted, including policy decisions and broader economic conditions, the data points towards a cooling job market. The Bank of England is likely to carefully monitor these indicators as it considers future interest rate decisions. Further data releases will be crucial in determining the trajectory of these trends and their impact on the wider economy.

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Read More: UK Job Losses Rise to Highest in 5 Years, Pay Grows Slower

Frequently Asked Questions

Q: Is unemployment going up in the UK?
Yes, the number of people without jobs has increased recently.
Q: Are people earning more money?
Pay is growing, but much slower than before.
Q: Why is this happening?
Businesses are being more careful about hiring, and costs for employers have changed.
Q: What does this mean for the economy?
It suggests the economy is slowing down, which might affect decisions about interest rates.