The UK’s labour market is showing further signs of weakening, with new data revealing a drop in payroll employment and a continued decline in job vacancies. The figures, released by the Office for National Statistics (ONS), suggest recent changes to business taxes and minimum wage rates may be weighing on employer hiring decisions.
The number of employees on company payrolls fell by 47,000 in March and by a further estimated 33,000 in April. Job vacancies also dropped, with the total number falling by 42,000 between February and April to 761,000 — continuing a downward trend that has persisted over recent quarters.
Analysts have pointed to April’s increase in employer National Insurance contributions and the uplift in the National Living Wage as possible factors influencing the latest figures.
“The broader picture continues to be of the labour market cooling,” said Liz McKeown, director of economic statistics at the ONS. The unemployment rate in the UK rose slightly to 4.5% in the January to March period, up from 4.4% previously. However, the ONS noted that this figure should be interpreted with caution due to low survey response rates.
Wage growth also appears to be slowing, though pay is still outpacing inflation. Regular earnings, which exclude bonuses, increased by 5.6% annually in the first quarter. Despite this slowdown, analysts warn that wage growth remains high enough to influence the Bank of England’s decisions on interest rates.
Ruth Gregory, deputy chief UK economist at Capital Economics, said the recent softening in employment suggests employers are adjusting to increased costs by limiting hiring. “Sticky wage growth may mean the Bank remains uneasy about inflationary pressures in the near term,” she said, adding that any interest rate cuts are likely to be “gradual”.
Last week, the Bank of England implemented a modest rate cut and signaled a cautious approach moving forward. Governor Andrew Bailey described the bank’s policy as “gradual and careful”, reflecting ongoing concerns about wage-driven inflation.
A separate employer survey released on Monday underscored the cooling sentiment in the labour market, showing a sharp drop in the number of businesses expecting to hire over the next three months — the lowest level seen outside the pandemic period.
Luke Bartholomew, deputy chief economist at Aberdeen, said while the data points to a slowdown, there is no immediate sign of a severe labour market shock. “There is some evidence of the impact of the increase in National Insurance,” he noted, “but nothing to suggest the market has fallen off a cliff.”
