In recent economic news, the United Kingdom has witnessed a rise in unemployment rates, coupled with a marked slowdown in pay growth, as indicated by official statistics. As of the three months ending in September, the unemployment rate has increased to 4.3%, up from 4% in the preceding quarter. While these figures may seem alarming, the Office for National Statistics (ONS) has expressed caution in interpreting them, highlighting potential issues with data collection that could affect their accuracy.
Significantly, despite the decline in wage growth, salaries are still increasing at a rate that outpaces inflation, one of the key metrics for assessing economic health. Pay, excluding bonuses, saw an annual growth of 4.8% between July and September, which is the lowest rate experienced in more than two years. Additionally, the number of job vacancies has continued to decrease, consistent with trends observed over the last two years. This suggests an ongoing contraction in the labor market, raising concerns for job seekers and those in employment alike.
Liz McKeown, the ONS’s director of economic statistics, noted that although unemployment has risen, the current levels are still slightly above those recorded before the pandemic hit the UK. She conveyed during an interview on the BBC’s Today programme that there is a “continued easing of the labour market.” However, the labor force survey that produces UK job data has had an atypical number of respondents in recent times, raising questions regarding the reliability of these statistics.
The Bank of England views labor market data as a crucial input when determining interest rates. Recently, the central bank cut rates for the second time this year, with inflation recorded at just 1.7%, which is below the target of 2%. McKeown acknowledged that concerns regarding the validity of the data are significant, especially as they could influence the Bank’s decisions. Additionally, anecdotal evidence suggests businesses, burdened with heightened costs, have slowed hiring as they prepare for the impending Budget changes.
Major retailers like Asda and Sainsbury’s, alongside the High Street chain Marks & Spencer, have expressed concerns about increasing operational costs stemming from hikes in National Insurance contributions and the minimum wage set to rise in April as per Chancellor Rachel Reeves’ first Budget. This increase is causing anxiety among businesses, which fear they might need to reduce hiring, limit salary increases, or become forced to raise prices on goods and services.
Notably, while pay raises in the public sector will have an impact on official figures for the remainder of the year, economists warn that the increase in employer National Insurance contributions could heavily squeeze the private sector. Alexandra Hall-Chen, a principal policy adviser for the Institute of Directors, pointed out that the amendments outlined in the Employment Rights Bill and the tax increases are heavily impacting hiring goals. She underscored the cumulative impact of these changes, advocating that the government must carefully evaluate business concerns regarding increased operational costs and risks.
A call for increased wages amidst rising costs is triggered by Wendy Jones-Blackett, a business owner from Chapel Allerton near Leeds. She operates a handmade greeting card business and while she employs seven people, she believes that the subcontractors she works with are likely to feel the impact of the government’s fiscal policies more significantly. She noted, “It is going to make us question pay rises – if you want to retain good staff, you want to increase their pay… but we will have to temper that with rising costs.”
Supportive of Jones-Blackett’s claims, a recent survey by the Recruitment and Employment Confederation, aided by KPMG, revealed a drop in job vacancies for the twelfth consecutive month, indicating a waning demand for labor. Nonetheless, Rob Wood, chief UK economist at Pantheon Macroeconomics, reassured that the Bank of England would prioritize overarching economic trends rather than minor discrepancies in data from the ONS while deliberating on interest rate decisions.
The consensus amongst economists suggests that the latest numbers will not prompt the Bank to implement another cut in rates next month. Meanwhile, Work and Pensions Secretary Liz Kendall has emphasized that more actions are necessary to enhance living standards, asserting that from April, the impending minimum wage increase will benefit three million of the nation’s lowest-paid workers. These economic dynamics present a nuanced narrative of a labor market in transition, where persistent inflation and rising structures loom over both job seekers and employers.
