Employers have cut annual pay increases and pared back hiring in recent months as the economic slowdown took its toll on the jobs market.
Data from the Office for National Statistics (ONS), released on Tuesday, showed that UK unemployment edged higher in the three months to June but the official jobless rate was unchanged at 4.7%, a four-year high.
Pay growth including bonuses dropped from 5% to 4.6% over the same period. However, stripping out one-off awards, pay growth remained at 5%, suggesting employers had cut back on incentives.
Giving a strong indication of employers’ reluctance to hire new staff, the vacancy rate fell by 44,000. The drop of more than 5% in the three months to June on the previous quarter was the 37th consecutive fall in vacancies and took the total to well below pre-pandemic levels at 718,000.
The ONS said its research “suggests some firms may not be recruiting new workers or replacing workers who have left”.
Rachel Reeves conceded that the government had “more to do” but defended her stewardship of the economy. During a visit to Belfast on Tuesday, the chancellor said Labour had been “creating more jobs” since entering office.
“The most important figure today is that there are 384,000 more people in work than when I became chancellor,” she said. “Everybody who can work should be in work, and as a government, we’re committed to helping more people back to work. There are huge opportunities in our economy.”
Last month, data showed the unemployment rate had risen to 4.7% in the three months to May, while pay growth slipped from 5.3% to 5%.
Suren Thiru, economics director at the accountancy body, the ICAEW, said the rise in employer national insurance in April was still taking a toll on firms hiring new staff.
“The UK jobs market is facing more pain in the coming months with higher labour costs likely to lift unemployment moderately higher, particularly given growing concerns over more tax rises in this autumn’s budget,” he said.
The figures supported the Bank of England’s view that the jobs market and pay growth were weakening, he said, but was unlikely to bring forward further interest rate cuts after a quarter-point cut to 4% last week.
“While these disheartening figures will reassure rate-setters that last week’s policy loosening was the right call, the pace at which the labour market is currently cooling is unlikely to be sufficient to prompt another rate cut in September,” he added.
Financial markets had expected unemployment to remain steady at 4.7% and for the rise in average earnings, including bonuses, to slow, from 5% to 4.7%.
The finance and business services sector, which pays out more in bonuses than other industries, had the lowest annual regular growth rate, at 3.1%.
Recent surveys have shown businesses reducing the number of job postings as they grapple with rising employment costs and worry about the economic outlook.
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The Chartered Institute of Personnel and Development said on Monday that hiring intentions among Britain’s businesses remain at a record low, with young people hit hardest by the drop in recruitment.
Almost three in five (57%) of private sector employers said they planned to recruit staff in the next three months – compared with 65% in autumn 2024 – as they dealt with the £25bn rise in employer national insurance contributions costs and higher minimum wage that took effect in April.
Hannah Slaughter, a senior economist at the Resolution Foundation thinktank, said that while the unemployment rate remained steady at 4.7%, it was up from 4.2% a year ago and 3.9% before the pandemic.
She said: “The UK’s post-pandemic labour market was red hot. But that period is officially over – the labour market is loose and getting looser, having shed 165,000 payrolled jobs over the past eight months.”
Slaughter said the job losses were concentrated in low-paying sectors such as retail and hospitality. She said it meant the government was likely to push back against campaigns for a big increase to the minimum wage next year, fearing it would lead to even larger job losses.
Private sector pay grew by 4.8% in the year to June. Adjusted by inflation the increase was 0.7%, maintaining a long run of real-terms increases in average earnings. Public sector pay increased by 5.7%, the ONS said.
Helen Whately, the shadow spokesperson for work and pensions, said Labour’s record since coming to power last year included 10 months of consecutive monthly increases in unemployment. “That means more families struggling to pay the bills and more people signing on for benefits,” she said.
Separately on Tuesday, the recruiter PageGroup warned of a “challenging” hiring market in its first half, with revenue falling 11% to £798.4m and pre-tax profit slumping 99% to just £0.2m. In its UK business, revenue slipped 13.6%.
Its chief executive, Nicholas Kirk, said the “ongoing macroeconomic uncertainty” was affecting confidence and extending the time it took for an employer to hire a new worker.
