UK employers cut jobs as tax hikes bite
High wage growth persisted in the three months to February, official data has shown, but a rapid drop in payrolled employment pointed to concerning trends in the labour market.
Annual growth in average weekly earnings excluding bonuses hit 5.9 per cent, the Office for National Statistics (ONS) said on Tuesday.
But separate tax data showed that businesses cut workers at the fastest pace since the start of the pandemic.
A provisional estimate shows that the number of people on payrolls fell by nearly 80,000 in March, compared to around 8,000 in the month before.
Vacancies also fell below pre-pandemic levels for the first time since early 2021.
Average earnings, including bonuses, came in at 5.6 per cent, also matching market expectations.
“Regular pay growth remains strong having increased slightly in the latest period,” said Liz McKeown, an economics director at the ONS.
“Growth accelerated in the previous pay rises fully fed through to our headline figures, while pay in the private sector was little changed.”
Firms shedding staff
The national unemployment rate remained unchanged at 4.4 per cent.
Payrolled employment figures will likely come as a warning to the Labour government. Its record tax hikes have unsettled thousands of firms, driving a slowdown in hiring and an uptick in redundancies.
Pantheon Macroeconomics’ Rob Wood described a possible drop in employment as “disappointing” despite strong pay growth.
UK minister for employment Alison McGovern said the government was working to create more jobs and train inactive people.
“Real wages are continuing to rise, and the national living wage is also coming into effect this month – boosting working people’s payslips and improving living standards as part of our plan for change,” McGovern said.
Stubbornly high wage growth is unlikely to make the Bank of England’s May decision any easier as high inflation continues to worry policymakers.
However, many economists believe President Donald Trump‘s tariffs, including those on vehicle imports and steel, will likely slow price growth.
KPMG chief UK economist Yael Selfin said higher labour costs, brought by a sharp rise in employers’ national insurance contributions in April, will likely put “downward pressure” on pay growth.
“We expect pay growth to moderate this year, with vacancies continuing to decline coupled with a marked improvement in staff availability,” Selfin added.
Capital Economics’ Ashley Webb said: “If the more uncertain backdrop from the recent US tariffs chaos soon becomes a bigger drag on firms’ hiring intentions, pay growth could start to fade more markedly.”
Economists and policymakers may take the latest release on wage growth with a pinch of salt too as the ONS has come under fire for its handling of labour market data.