Jamie Spencer
The state of the UK’s job market is raising concerns, with business leaders increasingly sounding the alarm about a possible recession. Recruitment figure James Reed recently claimed the current data points to economic trouble ahead. Yet, while certain indicators, such as falling job vacancies, signal a slowdown, robust wage growth and steady employment figures paint a more complex picture.
The latest labour market data released on Tuesday by the Office for National Statistics (ONS) showed average regular pay rising at a strong 5.2% rate in the three months to October, up from 4.4% in the prior period. Including bonuses, wages also rose by 5.2%. Adjusted for inflation, this marks a real wage increase of 3%, offering a financial boost to UK households just as the holiday season ramps up.
Pay Growth Fuels Consumer Resilience
The data on wages offers a bright spot in an otherwise cautious economic environment. Real wage growth—measured against CPI inflation—means that households are seeing their purchasing power improve for the first time in years, helping to offset lingering cost-of-living pressures.
The strongest annual pay growth was recorded in the manufacturing sector, with wages rising by 6%. This could indicate that skilled workers in industries critical to the economy remain in high demand despite other signs of slowdown.
However, this wage growth could also have broader consequences for monetary policy. With inflation already expected to tick higher in the coming months, the Bank of England’s monetary policy committee (MPC) will likely view strong pay increases as an obstacle to lowering inflation. Hopes for a pre-Christmas interest rate cut are now all but extinguished.
Decline in Job Vacancies Raises Concerns
While wage growth remains brisk, the jobs market is beginning to lose some of its earlier momentum. Job vacancies fell by 3.7% in the latest data, reaching 818,000. Since peaking in spring 2022 as the economy rebounded post-pandemic, vacancies have declined by a significant 486,000.
Vacancies are often seen as a forward-looking indicator of the labour market, and this steady decline suggests that employers may be growing more cautious about hiring. Yet, the broader labour market showed mixed results elsewhere: unemployment rose modestly by 31,000, while employment increased by 173,000, largely driven by growth in health and social care roles.
Recession Risks: Is the Jobs Market Signaling Trouble?
The decline in vacancies has added weight to fears of a slowdown, but Tuesday’s data does not strongly suggest an impending recession. Despite GDP contracting slightly by 0.1% in October, wage growth and steady employment levels could bolster consumer confidence and spending power in the near term.
James Reed’s dire warnings about a looming downturn may stem more from businesses’ anxiety about government policies than from current labour data. Employers are particularly concerned about the recent announcement of a £25 billion increase in national insurance contributions (NICs), set to take effect in April.
Policy Changes: A Delayed Impact on the Labour Market
Rachel Reeves’ October budget, which introduced the NICs hike, has sparked outrage among some business groups, with predictions of layoffs and slower hiring. However, these impacts are not yet reflected in the official figures. Businesses still have time to adapt, as the policy won’t take effect until next spring.
Moreover, other changes, such as a significant increase in the minimum wage, could further reshape the labour market in the coming months. Policymakers and analysts will need time to assess how these measures, alongside broader economic trends, influence hiring, wages, and inflation.
The Bank of England’s Dilemma
For the Bank of England, the most significant takeaway from the latest data will likely be the strength of wage growth. With inflation still lingering above target and expected to rise again, strong pay increases could make it more difficult to bring prices under control.
While businesses brace for the potential impacts of policy changes and economic uncertainty, the wage data suggests that UK households are experiencing some financial relief. For now, robust consumer spending powered by real wage gains could help stabilize the economy as the year comes to a close.
A Delicate Balance Ahead
The UK’s jobs market presents a mixed outlook. Declining job vacancies hint at a cooling labour market, while strong pay growth provides some resilience against broader economic challenges. With significant policy shifts on the horizon and inflation pressures persisting, the coming months will be critical in determining whether the UK can avoid slipping into a recession.
