The unemployment rate for April to June remained at 4.7% following 3 consecutive months of increases. Lockdown aside, this is the highest rate since February 2017.
The continued fall in job vacancies shows that this tougher environment for jobseekers reflects a downturn in recruitment activity, rather than mass redundancies. Following a dramatic rise as the economy opened up after lockdown, the number of job vacancies has been decreasing back to the pre-pandemic norm since April 2022. However, rather than levelling out at pre-pandemic levels as many expected, vacancies have now fallen 9.7% below this level and look set to continue declining this year.
The impact of changes to employer costs in the 2024 Autumn Budget continues to be felt, as well as the ongoing uncertainty in global markets as a result of tariffs; these factors have dampened business confidence and thus recruitment. The situation is further compounded by sluggish economic growth in the UK and the belief of many business owners that they are operating in an environment that doesn’t reward entrepreneurial risk taking.
The result is that businesses are electing to save rather than invest in new talent, and employees are opting to stay in role rather than entering the daunting job market. While fears of the detrimental impact AI will have on young people entering the workforce is not without merit, economic concerns continue to be the main driver of falling recruitment.
A rise in unemployment accompanied by a fall in job vacancies suggests a loosening of the tight labour market of recent years. This is reflected in average earnings growth which, although remaining at 5% in June, has been consistently falling since February. For the Bank of England, a softer labour market could be welcome news — high wage growth accompanied by stagnant productivity has been a strong inflationary driver. Slowing earnings growth is easing upwards pressure on inflation and giving the Monetary Policy Committee more room to consider rate cuts later this year.
However, this is not good news for the Chancellor. A weaker job market adds another layer of complexity to the upcoming Autumn Budget as lower employment may lead to reduced tax revenues at a time of high public spending. While inflation remains below earnings growth at 3.6%, it has incrementally risen for the past year and is expected to reach 4% later this year, eroding the gap between earnings growth and inflation. If these trends continue real wages may come under serious pressure, heightening the adversity faced by both ordinary people and the beleaguered Chancellor.
Professor Joe Nellis is economic adviser at MHA, the accountancy and advisory firm.
