UK labour market shows signs of stabilising after job losses | Economics

Britain’s employment market has shown signs of stabilization following a sharp rise in job losses earlier this year, thanks to Rachel Reeves’ tax increases.

As the Chancellor prepared for his 26 November budget, figures from the Office for National Statistics showed the unemployment rate rose to 4.8% in the three months to August, from 4.7% in July. City economists had predicted the rate would remain unchanged.

Separate figures from HMRC showed the number of workers on company payrolls fell by 10,000 in September. But the ONS said the job market slowdown had stabilized after steeper declines earlier this year, which were attributed to tax increases Reeves announced last year and implemented in April.

“After a long period of weak hiring activity, there are signs that the declines we have seen in both payroll numbers and vacancies are now stabilising,” ONS director of economic statistics Liz McKeown said.

The number of workers on company payrolls in August was also revised by the ONS from a decrease of 8,000 to an increase of 10,000; This underlined little change in the workforce of 30.3 million. Job vacancies fell by 9,000 to 717,000 in the three months to September; this was the second-smallest decline since mid-2022.

Annual growth in normal average weekly earnings excluding bonuses slowed slightly from 4.8% in the three months to July to 4.7% in the three months to August, matching City economists’ forecasts.

The ONS said private sector pay growth had slowed to the lowest rate in nearly four years, but public sector wage growth had increased, reflecting some earlier wage increases compared to last year. Annual growth was 6% in the public sector and 4.4% in the private sector.

Total wage growth rose unexpectedly to 5% from a revised 4.8%; This underlined the resilience of earnings despite a cooling labor market.

Martin Beck, chief economist at consultancy WPI Strategy, said: “The rise in employer national insurance contributions in April and the sharp rise in the national living wage have clearly weighed on hiring, but figures for the summer suggest the worst of the damage is past.

“Even so, the job market remains more fragile than at any time in recent years.”

The ONS’s figures are based on the widely criticized workforce survey, which has suffered from falling response rates. Experts argued this left policymakers “flying blind” and risked decisions being made based on faulty data.

Reeves is expected to increase taxes in the budget. But business leaders have warned that the weak growth outlook will make it difficult to raise taxes without hurting the economy.

Business leaders have called on the chancellor to ignore tax rises in next month’s budget and take action to stimulate the economy. Alex Hall-Chen, chief policy advisor on employment at the Institute of Directors, said: “A change in policy direction is needed if the government is to achieve its aim of stimulating growth and supporting businesses to create jobs.”

Work and Pensions Minister Pat McFadden said the latest figures showed record numbers of people working and looking for work. “But there are still too many people left out of employment or education and without the security that a good job provides,” he added.

Strong wage growth has fueled inflationary pressures, causing headaches for the Bank of England and raising the risk of further rate cuts following four rate cuts last year. But a deeper slowdown in the labor market could signal a deterioration in the economy, which could support faster rate cuts.

Threadneedle Street kept interest rates steady at 4% last month, driven by rising concerns about inflation despite a slowdown in the employment market and a weak outlook for the economy.

British economist Ashley Webb of Capital Economics said the Bank was unlikely to cut borrowing costs again this year. “The labor market is easing, albeit slowly, but wage growth is still slowing fairly gradually. This suggests the Bank of England will be more concerned about upside risks to inflation than downside risks to activity,” he added.