Firms continue to shed workers as jobs market deteriorates
The collapse of the UK jobs market has deepened, according to official data, undermining the Labour government’s goal to boost employment.
Firms continued to shed workers as the number of payrolled employees dropped by 6,000 in July, adding to a collapse of 142,000 over the year.
Provisional estimates suggest there was a fall of 8,000 payrolled employees in August while the unemployment rate was still 4.7 per cent.
The further decrease in job numbers will send a warning to Rachel Reeves two months before the Autumn Budget, with the Treasury expected to be tasked with finding around £30bn, mainly through tax hikes.
Top economists and business groups have pointed out the impact of lowering the salary threshold on employers’ national insurance contributions (NICs) last autumn on firms’ ability to hire more workers.
The British Chambers of Commerce (BCC)’s Shevaun Haviland and leaders at several industry groups have called on Labour to avoid imposing more damaging taxes on companies.
High wage growth to boost state pension
Wage growth excluding bonuses in the three months to July eased to 4.8 per cent, which matched market forecasts, while pay growth including bonuses was 4.7 per cent – threatening the Bank of England’s ambition to bring inflation down and engineer a “soft landing.”
Figures from the previous month showed that wages rose by five per cent over a three-month period, according to the Office for National Statistics (ONS).
Fresh data means the state pension is set to rise by 4.7 per cent as July wage growth figures are used to calculate the increase.
The triple lock uprating policy means the pension increases by whichever is highest out of wage growth in July or inflation in September.
With wage growth including bonuses rising by 4.7 per cent in July, it means pensioners will earn £12,534.60 per year from next April.
They could also be set for a state pension that is higher than the personal allowance offered to working Brits from 2027, according to analysis by AJ Bell’s head of public policy Rachel Vahey.
Vahey said the Treasury now faces a difficult battle in managing the extra cost worth billions from higher state pensions and whether it can sustain the triple lock.
“Removing the freeze on the personal allowance would come at significant cost to the Treasury at a time when the chancellor’s fiscal headroom is already strained at best, while an overhaul of the triple lock would come with huge political risk before the next general election,” Vahey said.
Jobs market clashes with inflation risks
Rachel Reeves and Keir Starmer’s economic advisers on a “Budget board” are reportedly considering welfare reforms to encourage inactive Brits to get into work while a focus on the cost of living is a part of preparations for this year’s statement.
The Budget and its resulting economic effects will be analysed by Bank of England officials, who raised the alarm on the inflationary risks of last year’s tax hikes and pressures it added to the jobs market as a whole.
The Bank is widely expected to hold interest rates in a decision later this week while inflation data due to be published on Wednesday will also provide some guidance on monetary policy.
Higher food prices can lead to Brits fearing further price hikes are to come and heighten inflation expectations.
Morning Wire’s Shadow Monetary Policy Committee voted 8-1 to hold interest rates. One member, Vicky Pryce, voted for interest rates to be held.
Barclays’ Jack Meaning and former MPC member Jonathan Haskel flagged the potential damage a weakened jobs market could have on prices.