The UK labour market suffered its sharpest decline in payroll employment because the top of the Covid-19 pandemic, in accordance with the newest official knowledge, with wage progress cooling and job vacancies persevering with to fall.
Figures from HM Income & Customs revealed that the variety of payroll workers fell by simply over 109,000 in Could — the steepest month-to-month fall since Could 2020. The annual drop now stands at 274,000. Since Chancellor Rachel Reeves’s inaugural funds in October, payroll employment has contracted by 276,000, prompting concern that rising employer prices — together with a £25 billion hike in nationwide insurance coverage contributions this spring — are hitting jobs.
The Workplace for Nationwide Statistics (ONS) additionally reported that wage progress is slowing. Common pay excluding bonuses rose by 5.2% within the three months to April, down from 5.5% within the earlier interval and beneath analysts’ expectations. Together with bonuses, wage progress stood at 5.3%, additionally down from 5.6%.
This cooling got here regardless of the 6.7% enhance within the minimal wage in April. KPMG UK’s chief economist Yael Selfin mentioned the figures indicated that wage pressures are more likely to ease additional this yr because the economic system slows. “This will limit workers’ bargaining power,” she added.
The UK unemployment fee additionally edged as much as 4.6% within the newest quarter — the best stage because the post-lockdown rebound in 2021. Job vacancies dropped by an extra 63,000 to 736,000, as many corporations appeared to delay or freeze hiring.
ONS director of financial statistics Liz McKeown mentioned that suggestions from companies indicated a rising hesitancy to exchange employees or rent new employees. “There continues to be weakening in the labour market,” she mentioned. “Some firms may be holding back from recruiting.”
Regardless of this, wage ranges stay traditionally robust, notably within the public sector, the place pay rose by 5.6% in comparison with 5.1% within the non-public sector. “Public sector pay is now growing at a higher rate than private sector wages,” McKeown added.
The deteriorating jobs outlook may present the Financial institution of England with justification for additional rate of interest cuts, particularly after final week’s tender earnings and inflation knowledge. With inflation now again as much as 3.5% in April — its highest since January — the Financial institution stays beneath stress to stability cooling wage progress towards cussed worth pressures.
James Smith, economist at ING, mentioned the information “helps cement” fee lower expectations for August and November. Rob Wooden of Pantheon Macroeconomics agreed, noting that “the labour market looks in worse shape in May, which could tip the MPC into cutting rates again in August”.
Markets responded swiftly. Sterling dropped 0.6% towards the greenback to $1.34, whereas the yield on 10-year gilts fell to 4.56%. The FTSE 100 rose 0.48% and the FTSE 250 gained 0.40%.
The figures land forward of Rachel Reeves’s hotly anticipated spending overview on Wednesday, the place she is predicted to stipulate the federal government’s day-to-day spending for the following three years, alongside over £100 billion of capital funding.
With calls mounting for elevated funding throughout public companies — from defence to welfare — and UK borrowing prices nonetheless excessive, the stress on the federal government’s financial technique is rising.
New GDP figures out this Thursday are anticipated to point out that the UK economic system shrank barely in April, regardless of a 0.7% growth within the first quarter. If confirmed, this could reinforce considerations that the post-election honeymoon could also be short-lived as Britain’s labour market begins to stall.
