For the past few years only cursory attention has been paid to the unemployment figures because the jobless rate has been low and there have been plenty of unfilled vacancies for those seeking work. But, thanks to a slowing economy and decisions made by Rachel Reeves in last month’s budget, that could be about to change.
For the next few months every release on the state of the labour market will be scrutinised to see what impact two announcements made by Reeves last month are having on jobs.
Inevitably, the chancellor’s decision to increase the national minimum wage by 6.7% and increase employer national insurance contributions will have some effect but it will take months to assess how big those effects will be.
The good news for Reeves is that she has pushed up the cost of employment when the labour market is in pretty good shape. The unemployment rate in the three months to September stood at 4.3%, up from 4% in the three months to August. However, the problems the Office for National Statistics is having with the data for its labour force survey means that increase should be treated with caution. Britain’s jobless rate is still low by historical standards.
The less good news for the chancellor is that there are some signs of the labour market cooling. An alternative measure of calculating jobs growth – payroll numbers from HMRC – was down by 5,000 in October and has fallen in five of the past seven months.
Meanwhile, the number of job vacancies dropped by 35,000 in the three months to October and at 831,000 is now only slightly above their pre-pandemic levels. On the face of it, the increase in average earnings growth from 3.9% in the three months to August to 4.3% in the three months ending in September paints a stronger picture but the annual comparisons are distorted by one-off payments to civil servants in the summer of 2023.
Sanjay Raja, the chief UK economist at Deutsche Bank, said the figures from the ONS pointed to a steady loosening in the labour market, which makes it easier for the Bank of England to cut interest rates but creates a potential headache for Reeves.
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For now there is not much for the chancellor to worry about. But as Raja notes: “There are some cracks appearing in the labour market – even before budget measures start to bite.”