Cracks beginning to show in UK jobs market

Vacancy numbers down 51,000 in the three months to February 2023, new figures out today showed.

Economic inactivity was down 0.2% to 21.3%. Unemployment rate remains unchanged at 3.7%.

Danni Hewson, AJ Bell head of financial analysis, comments on the latest UK jobs figures: “Whilst the overall number of jobs vacancies is still higher than pre-pandemic levels, that number has fallen for the eighth month in a row. Businesses are holding back on expansion plans, they’re nervous about how the economic picture might morph over the next few months and they’re grappling with high costs including upward pressure on wages.

“But as the jobs market cools off from the post-lockdown boom, the need to pay higher and higher wages is also losing heat. Pay growth is still strong at 6.5% but that’s down a touch from the previous month and if inflation does start to fall significantly over the course of the year, pay discussions will take on a very different tenor going forward.

“That’s going to be difficult to stomach for many workers who just aren’t feeling the benefit of those wage hikes. Real pay is still falling, and prices might stop rising as fast as they were but that doesn’t mean the cost of living is going to get any cheaper.

“For some people that excruciatingly high cost of living has pushed them into work with the rather clunkily titled ‘economically inactive’ cohort down fractionally over the three months to February.  But it’s still more than one percent higher than it was before Covid came to our shores and it’s a conundrum that’s taxing those big brains at the Treasury.

“Why are those people out of work? What changes could be made to entice them into the labour market? Because despite the fact that vacancy numbers are falling there are still over a million gaps, and businesses right across the country are struggling to be as productive as they know they could be.

“Highly anticipated changes to the lifetime allowance for pension savings might well keep highly skilled workers at their desks for longer, or even persuade them to set aside their golf clubs for a couple of days a week. It’s an incredibly welcome start, but it does little to address labour issues at the lower end of end of the scale.

“Childcare costs, NHS waiting lists and the cap on how much people can add to their pension pot once they’ve started to take an income must also be carefully looked at if the UK economy is going achieve any kind of meaningful growth going forward.”