The latest data from the UK jobs market reveals a complex scenario characterized by a slowdown in hiring and rising unemployment, while wage growth remains notably high. According to the Office for National Statistics (ONS), the period from July to August 2023 saw the number of vacancies decline by 119,000 compared to the previous year. This shift reflects a growing caution among employers, influenced by factors such as the recent £25 billion national insurance increase proposed by Labour’s Rachel Reeves and external pressures from international trade dynamics.
As of July 2023, the unemployment rate reached 4.7%, marking a 0.1 percentage point increase from the previous quarter and representing the highest level of unemployment in four years. The ratio of unemployed individuals to job vacancies now stands at 2.3, up from 2.2 earlier this year. Despite these figures, there has been a slight uptick in employment as more individuals transition from economic inactivity into the workforce. The economic inactivity rate decreased to 21.1%, down 0.8 percentage points from a year prior, although it remains higher than pre-pandemic levels.
Helen Gray, chief economist at the Learning and Work Institute, noted that while economic inactivity is declining, many returning workers are still seeking employment rather than securing positions. This trend complicates the overall picture of the labour market, which the Bank of England monitors closely as it deliberates on interest rates.
Wage Growth Remains Robust
Despite the labour market slowdown, wage growth remains strong. In the three months leading up to July 2023, wages increased at an annual rate of 4.8% when bonuses are excluded, according to ONS data. Bank of England Governor Andrew Bailey has emphasized the significance of wage trends in shaping the central bank’s monetary policy. The persistent rise in wages has led to concerns that companies may continue to increase prices, potentially fuelling further inflation.
As the Bank of England’s monetary policy committee prepares to meet, the latest figures suggest that a rate cut this week is unlikely. The current interest rate stands at 4%, a figure that the committee may be hesitant to alter given the strong wage growth that exceeds the Bank’s target for inflation control.
Real Wages and Consumer Concerns
Despite nominal wage increases, real wages are feeling the strain due to rising inflation, particularly from food and energy costs. The ONS reports that real wages are only 1% higher than a year ago, and after accounting for housing costs, this figure drops to 0.5%. As inflation continues to rise, many consumers may experience financial pressure, even as the government expresses a commitment to ensuring that economic growth translates into tangible benefits for workers.
Ben Harrison, director of the Work Foundation, highlighted the challenges posed by stagnant living standards coupled with persistent inflation. He stated, “The combination of stagnant living standards and sticky inflation means that people are still likely to feel pessimistic about their household finances one year into the new parliament.”
The current state of the UK job market underscores the complex interplay between hiring trends, wage growth, and inflation, creating a challenging environment for both policymakers and workers alike.
