Britain’s employment market has shown signs of stabilising after a sharp rise in job losses earlier this year blamed on tax rises introduced by Rachel Reeves.
As the chancellor prepares for her 26 November budget, figures from the Office for National Statistics showed the unemployment rate rose to 4.8% in the three months to August, up from 4.7% in July. City economists had forecast the rate to remain unchanged.
Separate figures from HMRC showed the number of workers on company payrolls dropped by 10,000 in September. However, the ONS said the slowdown in the jobs market was steadying after steeper declines earlier this year, which had been attributed to tax increases announced by Reeves last year and introduced in April.
“After a long period of weak hiring activity, there are signs that the falls we have seen in both payroll numbers and vacancies are now levelling off,” said Liz McKeown, the ONS director of economic statistics.
The number of workers on company payrolls in August was also revised by the ONS from a decline of 8,000 to an increase of 10,000, highlighting little change in a workforce of 30.3 million. Job vacancies fell by 9,000 to stand at 717,000 in the three months to September, the second smallest decline since mid 2022.
Annual growth in regular average weekly earnings, excluding bonuses, slowed slightly from 4.8% in the three months to July to 4.7% in the three months to August, matching City economists’ forecasts.
The ONS said wage growth slowed in the private sector to its lowest rate in nearly four years, but public sector pay growth rose, reflecting some pay rises being awarded earlier than they were last year. Annual growth was 6% for the public sector and 4.4% for the private sector.
Total pay growth unexpectedly rose from a revised level of 4.8% to 5%, highlighting resilience in earnings despite a cooling jobs market.
Martin Beck, the chief economist at the consultancy WPI Strategy, said: “April’s rise in employer national insurance contributions and the sharp hike in the national living wage have clearly weighed on hiring, but figures over the summer suggest the worst of the damage is passing.
“Even so, the jobs market remains more fragile than at any time in recent years.”
The ONS’s figures are based on its widely criticised labour force survey, which has suffered from collapsing response rates. Experts have argued this leaves policymakers “flying blind”, risking decisions being taken based on flawed data.
Reeves is expected to raise taxes in the budget. However, business leaders have warned a weaker growth outlook will make it harder for her to raise taxes without harming the economy.
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Business groups called on the chancellor to rule out tax increases at next month’s budget and to take action to stimulate the economy. Alex Hall-Chen, the principal policy adviser for employment at the Institute of Directors, said: “A change of policy direction is needed if the government is to meet its target of stimulating growth and supporting businesses to create jobs.”
Pat McFadden, the work and pensions secretary, said the latest figures showed record numbers of people were in work and looking for a job. “However, there are still too many people locked out of employment or training and missing out on the security a good job provides,” he added.
Strong wage growth has caused a headache for the Bank of England by stoking inflationary pressures, putting further interest rate cuts at risk after four reductions in the past year. However, a deeper slowdown in the jobs market could show the economy is deteriorating, supporting faster rate cuts.
Threadneedle Street kept interest rates on hold at 4% last month amid growing concern over inflation, despite the slowdown in the jobs market and a weaker outlook for the economy.
Ashley Webb, a UK economist at Capital Economics, said the Bank was unlikely to reduce borrowing costs again this year. “The labour market is loosening, albeit only slowly, but wage growth is still easing only fairly gradually. This suggests the Bank of England will remain more concerned over the upside risks to inflation rather than the downside risks to activity,” he added.
