Business figures have been sounding increasingly alarmed about the state of the UK’s jobs market in recent days, with the recruiter James Reed claiming it augurs a recession.
There were certainly some signs of a slowdown in the latest labour market data, published on Tuesday – but with pay growing briskly, it was hard to detect a significant shift.
Average regular pay increased at a healthy 5.2% clip in the three months to October, according to the Office for National Statistics (ONS) – up from 4.4% in the previous three-month period. Including bonuses, the figure was also 5.2%.
That means real wages – adjusted for CPI inflation, the measure targeted by the Bank of England – also rose, by 3%, putting more money in the public’s pockets in the run-up to Christmas.
The strongest annual pay growth was in manufacturing, the ONS said, at 6% – perhaps a sign that skilled workers in this key sector are in particular demand.
If there were any lingering hope that the Bank’s monetary policy committee might deliver a pre-Christmas interest rate cut on Thursday, when they meet for the last time in 2024, the pay data must have extinguished it.
They will fret that such strong wage growth will put a floor under prices, with inflation already expected to continue ticking up in the coming months.
Reed’s downbeat analysis was more borne out in the data on jobs vacancies, which continued to decline, falling by another 3.7%, to 818,000.
Since peaking in spring 2022, as the economy surged back from the pandemic, vacancies – which can be a pointer of the jobs market’s future direction – have now fallen by a total of 486,000.
But there was little drama in the rest of Tuesday’s data. Unemployment was up, by a modest 31,000 on the quarter; but employment also rose, by 173,000 – though much of that growth was in health and social care.
Despite Friday’s unexpected news that GDP shrank slightly, by 0.1%, in October, there is little in the labour market data to indicate that a recession – even a shallow one – is on the way.
Absent some fresh shock, strong real wage growth should help to ease the burden of the cost of living crisis for households, and boost consumer confidence as the year comes to a close.
But this data is the last set gathered before Rachel Reeves delivered her late October budget, the centrepiece of which was the £25bn increase in employer national insurance contributions (NICs).
It is that policy in particular that has infuriated some business groups and led to predictions of layoffs.
Even if these dire warnings prove correct, they would not yet be evident in official figures – and indeed, the NICs rise does not come into force until April, giving businesses some leeway to make decisions.
It will be some time before policymakers can judge how the chancellor’s budget package – and other factors, such as the significant increase in the minimum wage – filter out into the labour market.
For now, the strongest signal the MPC is likely to take from Tuesday’s dump of data is that bumper pay rises may mean inflation is harder to drive down than they hoped.
