The UK jobs market continues to cool but Rachel Reeves will be relieved that there is little sign as yet in the latest data that her tax increase on employers is leading to mass job losses.
Targeting employer national insurance contributions (NICs) to raise an extra £25bn in October’s budget sparked a furious business backlash and dire warnings about the impact for workers.
So far there is little sign of a dramatic shakeout – but the labour market slowdown that began last year has continued.
The number of vacancies across the economy, which peaked at 1.3m in early 2022, has now been declining for 33 quarters, and at 781,000 has slipped below the pre-pandemic level.
According to the ONS’s (admittedly unreliable) labour force survey (LFS), unemployment was unchanged for the quarter, at 4.4% – again, similar to the pre-pandemic level. The employment rate rose modestly, to 75.1%.
The number of employees firms have on their payrolls – measured using tax data, and so not subject to the same doubts as the LFS – declined by an unusually large 78,000 in March; but the ONS itself put that in perspective, saying, “the number of payrolled employees shows little change since January 2024”.
This continued softening does point to a slowdown then, but appears to belie some of the more catastrophic warnings about the impact of the NICs rise, which is being implemented alongside a significant 7% increase in the statutory “national living wage”.
The higher tax burden for employers may yet continue to weigh on demand for workers in the coming months, but henceforward it will become increasingly difficult to isolate it from the impact of the looming global slowdown that is likely to result from Donald Trump’s tariff policies.
February’s better than expected GDP data may also soon look like a snapshot of the state of the economy before the storm unleashed by Washington.
The UK may yet strike an agreement for the 10% levy on all exports to the US to be lifted – potentially in exchange for concessions such as tax cuts for global tech firms.
But as Reeves herself has been clear, it will be impossible to shelter the UK from the knock on effects of slower global growth, as the tariffs take hold.
The Bank of England, which still has interest rates set to curb inflation, rather than boost waning growth, will have to weigh the risks of such a downturn against the continued strength of wage growth, which makes rate-setters anxious.
The ONS said total pay, including bonuses, increased by 5.6% in three months to February, significantly higher than the Bank’s monetary policy committee is likely to be comfortable with.
But as exporters prepare to contend with the impact of the rollercoaster tariff policy, this latest set of data may rapidly come to look like a snapshot of the state of the jobs market before, as Rachel Reeves has repeatedly said, the world changed.
