The latest data from the UK jobs market reveals a concerning trend: while wage growth remains elevated, hiring activity is slowing, resulting in a challenging environment for both employers and employees. According to the Office for National Statistics (ONS), the number of vacancies decreased by 119,000 in the July to August period compared to the previous year. Unemployment rates have also seen a slight uptick, now standing at 4.7%, the highest in four years.
The current economic landscape reflects a cautious approach among businesses. Factors such as Rachel Reeves‘s proposed £25 billion national insurance increase, ongoing disruptions from artificial intelligence, and international trade tensions, including Donald Trump‘s tariffs, contribute to this hesitance. There are now 2.3 unemployed individuals for every job vacancy, an increase from 2.2 in the previous quarter.
Employment Trends and Economic Inactivity
Despite the rising unemployment figures, there has been a modest increase in overall employment as more individuals transition from economic inactivity into the workforce. The economic inactivity rate dropped to 21.1%, a decline of 0.8 percentage points from a year earlier. Yet, this figure remains higher than pre-pandemic levels. Helen Gray, chief economist at the Learning and Work Institute, stated, “While economic inactivity is falling, a sizeable number of those returning to the labour market appear to be seeking work, rather than entering employment.”
As the Bank of England prepares for its interest rate decision, there is an expectation that this labour market slowdown will aid in controlling wage inflation. Currently, wage growth remains strong, recorded at an annual rate of 4.8% excluding bonuses in the three months leading up to July. Policymakers are concerned that sustained wage increases could lead to further inflationary pressures, allowing companies to raise prices and thus perpetuate a cycle of rising costs.
Inflation Impact on Real Wages
Despite the positive news on wage growth, the reality for workers is more complex. With inflation rising, driven by increasing food prices and energy costs, the ONS indicates that real wages have only improved by 1% year-on-year, and when factoring in housing costs, this figure is reduced to 0.5%. This situation suggests that many consumers are likely to continue feeling financial strain, despite the government’s commitment to ensuring economic growth benefits workers.
Ben Harrison, director of the Work Foundation, highlighted the grim outlook, stating, “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.” This sentiment underscores the challenges faced by households in navigating the current economic landscape, as they deal with rising costs and stagnant wage growth.
With the Bank of England’s interest rate meeting approaching, the latest data complicates the prospect of rate cuts. The ongoing high wage growth, combined with a rise in unemployment, creates a delicate balance for policymakers as they strive to manage inflation while supporting economic stability.
