The latest labour market data from the Office for National Statistics (ONS) paints a concerning picture for the UK economy, with the number of employed people falling once again, particularly in the retail and hospitality sectors. This reflects a broader slowdown in hiring activity, even as the unemployment rate remains steady at 5.1%.
The figures show that the number of employees on payrolls fell by 184,000 in December compared to a year earlier, with the retail and hospitality industries, including pubs, being particularly hard hit. This aligns with the director of economic statistics at the ONS, Liz McKeown, who noted that the reductions over the past year have been “concentrated in retail and hospitality, and reflecting ongoing weak hiring activity.”
The data also reveals that private sector wage growth has slowed to its lowest rate in five years, with wages excluding bonuses rising by 4.5% in the quarter, down from 4.6% previously. Including bonuses, wage growth slipped to 4.7% from 4.8%. In contrast, public sector wage growth remains elevated, reflecting the continued impact of some pay rises being awarded earlier than they were last year.
The labour market’s weakening over the past year is evident in the jump in unemployment to 1.8 million, as well as the decline in job vacancies to below the pre-pandemic average. Employers have become more reluctant to retain staff and advertise for new workers, a trend that has been exacerbated by the Chancellor, Rachel Reeves, increasing employer national insurance contributions and the minimum wage last year.
Furthermore, the global economic uncertainty caused by former US President Donald Trump’s “liberation day” tariffs last April has dampened the appetite for investment among large corporations. The boom in artificial intelligence has also led some employers to re-examine their hiring policies, with more organisations becoming reluctant to hire school leavers and graduates for entry-level white-collar jobs.
City economists expect the Bank of England to cut interest rates at least twice this year, from 3.75% to 3.25%, in response to the weaker outlook for jobs and inflation. This move aims to provide some relief to the struggling economy and support the labour market’s recovery.