The UK labor market is beginning to feel the impact of the economic slowdown, with employers reducing bonus payouts and scaling back hiring activities in recent months.
New data released by the Office for National Statistics (ONS) on Tuesday reveals a slight increase in UK unemployment in the three months leading up to June. While the official jobless rate remained at 4.7%, marking a four-year high, other indicators point towards a cooling job market.
Pay growth, including bonuses, has decreased from 5% to 4.6% during the same period. Notably, when excluding one-off bonuses, pay growth held steady at 5%, suggesting a deliberate cutback on these incentives by employers.
Further evidence of employer caution in hiring is indicated by a significant fall in the vacancy rate by 44,000. This over 5% drop in the three months to June compared to the previous quarter marks the 37th consecutive decline in job openings, pushing the total well below pre-pandemic levels to 718,000.
The ONS suggests that their findings “indicate that some companies may not be hiring new staff or replacing those who have left.” This aligns with data from the previous month, which showed an unemployment rate of 4.7% for the three months to May, accompanied by a dip in pay growth from 5.3% to 5%.
Suren Thiru, economics director at the ICAEW, highlights the continued impact of the April rise in employer national insurance contributions on hiring decisions. He anticipates “more pain” for the UK jobs market in the coming months, with potential for a moderate increase in unemployment due to higher labor costs and concerns about further tax increases in the autumn budget.
Thiru notes that these figures support the Bank of England’s assessment of a weakening job market and pay growth. However, he believes the current pace of cooling is unlikely to trigger additional interest rate cuts following last week’s quarter-point reduction to 4%.
Financial markets had generally anticipated unemployment to remain stable at 4.7% and a slowdown in average earnings growth (including bonuses) from 5% to 4.7%.
The finance and business services sector, known for higher bonus payouts, experienced the lowest annual regular pay growth rate at 3.1%.
Recent surveys corroborate these trends, revealing that businesses are reducing job postings as they grapple with increasing employment costs and uncertainty surrounding the economic outlook.
A report from the Chartered Institute of Personnel and Development on Monday indicated that hiring intentions among UK businesses remain at a record low, with young people being disproportionately affected by the decline in recruitment.
Nearly three in five (57%) private sector employers reported plans to recruit staff in the next three months – a decrease from 65% in autumn 2024. This shift reflects their response to the £25 billion increase in employer national insurance contributions and the rise in the minimum wage implemented in April.
