Unemployment rates rose in the UK while the number of job vacancies fell to their lowest level in more than three years, suggesting employers have pulled back on hiring after Chancellor Rachel Reeves’ October budget raised National Insurance contributions.
New figures from the Office for National Statistics (ONS) show the unemployment rate rose to 4.4 per cent from 4.3 per cent in the quarter to December, as the number of job vacancies fell by 24,000 to 812,000. The number of paid employees fell by 47,000 in December to 30.3 million – the biggest decline since November 2020.
Economists say the slowdown reflects looming tax pressures on companies. From April, National Insurance will rise from 13.8 per cent to 15 per cent, while the earnings threshold at which tax is imposed will shrink from £9,100 to £5,000. Yael Selvin, chief economist at KPMG in the UK, explained that these anticipated tax increases have prompted employers to hold back hiring, warning: “We expect this to be a headwind to labor market activity in the near term, likely to translate into an uptick.” . In unemployment.”
Despite the decline in job openings, wages excluding bonuses rose to 5.6 percent – the highest level in six months – and ahead of analysts’ expectations. With inflation falling to 2.5 percent, real wages continue to rise, providing some relief to families grappling with the cost of living. However, this booming wage growth may complicate the Bank of England’s next move on interest rates. Although inflation has fallen more sharply than expected and GDP growth remains tepid at 0.1 percent, wages rising at this pace may limit the extent of any interest rate cuts.
Thomas Pugh, an economist at RSM UK, believes the central bank is likely to give more weight to weak growth and moderate inflation, stressing that a 25 basis point interest rate cut at the February meeting “remains a sure bet.” However, strong wage data may make policymakers cautious in the coming months.
Liz McKeown, director of economic statistics at the Office for National Statistics, noted that although job vacancies have now fallen for the 30th time in a row, they are still slightly above pre-pandemic levels. Concerns about data quality remain, with response rates to the labor market survey falling, but the overall picture suggests that employers – facing higher costs from April – are already beginning to tighten their hiring plans.