The last time unemployment was as high as 4.8 per cent, Britain was tentatively easing restrictions on lockdown in the early months of 2021.
Just like then, the labour market over the past year has been under intense strain following the £25 billion payroll tax raid and 6.7 per cent increase in the minimum wage, with hiring and payroll jobs falling sharply.
However, the latest figures from the Office for National Statistics released on Tuesday show the market is now “stabilising”, according to Andrew Wishart, senior UK economist at Berenberg bank.
Others agreed. “The underlying story is a stabilising labour market with jobs no longer falling,” Pantheon Macroeconomics, a research outfit, said.
“The labour market appears to still be weakening … However, the pace of deterioration is slowing,” said Thomas Pugh, chief economist at RSM UK.
That the labour market has only just stopped getting worse, as most analysts judged after the latest batch of jobs data — which comes with a big health warning due to statistical inaccuracies — is small beer.
More than 120,000 payroll jobs have been lost in just under a year since Rachel Reeves, the chancellor, announced the increase in employers’ national insurance contributions (NICs) last October, although the number was revised down sharply for previous months compared with earlier estimates, as is customary with the HM Revenue & Customs figures.
Nonetheless, over the past 11 months, retail, leisure and hospitality businesses have lost more than 100,000 payrolled employees. These sectors felt the impact of the NICs raid hardest as they tend to employ a larger share of part-time, low-paid and young staff.
Unemployment is back up to its pandemic levels at 4.8 per cent, the ONS said. Joblessness among young people drove unemployment higher, a reflection of the damage the NICs rise has done to this group who are at the start of their careers.
Older people, in contrast, are thriving. The ONS estimated that there were 1.7 million people aged over 65 in work in the past three months, most of whom also receive the state pension, a record high and up by nearly 7 per cent in the past quarter alone. That may, however, be a function of inflation eating into the real value of retirement savings, forcing workers to stay in their jobs for longer than they had hoped.
That is not to say the labour market would not have corrected anyway without Reeves’s tax increases.
The post-pandemic labour market in the UK — and around the world — was surprisingly healthy, prompting many to predict it would eventually prove unsustainable. At their peak, vacancies hit 1.3 million, a figure now down to 717,000, and pay growth headed towards 10 per cent. Given the UK economy’s well-known growth and productivity problems, this could not last without generating some inflation.
The tax increases announced last October, which focused on employment rather than wealth or earnings, probably acted as a catalyst for this labour market unwinding.
In its election manifesto, Labour has ruled out raising the main rates of VAT, income tax and employee NICs. But to keep that promise, Reeves was forced into more economically harmful tax rises to support the public finances. She may have to do the same at the budget on November 26 to maintain the manifesto pledges.
Last year Reeves gambled on the jobs market being able to withstand the increase in NICs. Some economists have said she should consider reversing the 4 percentage point cut to individual NICs pushed through by the Conservatives to avoid piling further misery on employers at the budget next month. That would yield tens of billions of pounds towards plugging a fiscal hole estimated to be as high as £40 billion.
Setting aside the chancellor’s options, there were signs of encouragement for the Bank of England in the latest labour market statistics.
Private sector wage growth — a key indicator for the central bank — slid to 4.4 per cent, the lowest rate since the three months to December 2021 and above the inflation rate of 3.8 per cent. Regular wage growth cooled to 4.7 per cent over the previous quarter, the weakest increase since the quarter to May 2022, the ONS said.
However, real weekly wages — what is left over after inflation — have only increased to £682 from £680.50 since September last year, “barely enough to cover the cost of a Greggs sausage roll”, Charlie McCurdy, an economist at the Resolution Foundation think tank, said.
The number of unemployed people per vacancy, a kind of measure of competition for jobs, inched up to 2.4 and has been steadily increasing over the past three years, which should keep a lid on pay pressures and encourage the Bank’s rate-setters.
Fundamentally, though, the expectation in the City remains that the monetary policy committee will leave borrowing costs unchanged at 4 per cent for the remainder of the year.
“One weak labour market release is unlikely to move the Bank of England away from its ‘gradual and careful’ approach to easing”, BNP Paribas, the French investment bank, said.
Cuts will resume next year though, with analysts at Capital Economics, a research outfit, predicting that rates could go as low as 3 per cent.
Robert Walters see signs of recovery in recruitment
Many workers are reluctant to move jobs for fear of being last in and first out
DAN KITWOOD/GETTY IMAGES
For the first time in almost three years there are “signs of sustained improvement” in the hiring market, Robert Walters, the London-listed recruiter, has said (Tom Howard writes).
Echoing comments from its larger peer, Hays, last week, Robert Walters reported that its trading “improved slightly” over summer, particularly in the UK and Asia.
Between July and September, Robert Walters earned fees of £69.6 million, which was 13 per cent lower than the £79.9 million it generated in the same period last year. That was, however, its best showing since the spring of 2023 and marked the second month in a row that its annual rate of decline had slowed.
London was arguably its best-performing region, with income growth of 23 per cent in the quarter, although the UK as a whole was down 4 per cent.
Not since the very start of 2023 has Robert Walters reported year-on-year growth in its quarterly fee income. At the nadir of the prolonged downturn, in the first quarter of last year, the group’s annual rate of decline hit 21 per cent.
Trade wars and real wars, high interest rates and higher inflation, plus a raft of general elections have sapped the confidence of both companies and workers. Businesses, which have also been hit by higher payroll taxes, have delayed, or even canned entirely, their hiring plans, while workers are reluctant to move for fear of being last in and first out.
No one in the industry can remember a downturn that has lasted as long as this one. Toby Fowlston, Robert Walters’ chief executive, acknowledged that the global hiring market “remains fragile” and he expects the recovery “will develop very gradually”.
The group’s fee income in September was down only 9 per cent compared with the same month last year, renewing hopes that the end is finally in sight. As a consequence, Robert Walters shares, which had fallen to levels not seen since the global financial crisis, rallied 13½p, or 11.5 per cent, to 130½p on Tuesday — their best day since May last year.