The UK economy is facing challenges ahead, but the labour market doesn’t paint a picture of doom and gloom, with new analysis from global hiring platform, Indeed, indicating continued resilience.
As of 9 December 2022, UK job postings were 50% above the 1 February 2020, pre-pandemic baseline, seasonally adjusted – a new post-pandemic high. Postings have shown resilience to economic headwinds amid the cost of living crisis this year, with many organisations still looking to hire.
The North East of England has recorded strongest growth in job postings in 2022, now standing 92% above the 1 February 2020 baseline. Conversely, London has experienced the slowest growth, sitting at the bottom of the rankings at 28% above the 1 February 2020 baseline, a 6% decrease from the start of the year.
Differences in job sector composition are one of the biggest indicators of regional performance. Regions with strong growth tend to have greater dominance of sectors like distribution, manufacturing, construction and healthcare. With a relatively high share of in-person service jobs, London continues to see an impact of higher rates of working from home and less commuter footfall compared with pre-pandemic levels.
Labour market could stay tight despite recession
The ratio of unemployed people to vacancies — one measure of labour market tightness — remains at a near-record low, at 1.0 in the three months to October 2022.
Despite the recession, Indeed analysis suggests the labour market could remain relatively tight by historical standards. If the relationship between economic growth and vacancies that prevailed in the aftermath of the 2008/9 financial crisis were to be repeated, current forecasts from both the Bank of England and the Office for Budgetary Responsibility (OBR) suggest that the ratio of unemployed people per vacancy isn’t likely to rise much from the current level.
By the end of 2023, the ratio could rise to 1.7 under the BoE scenario and 1.5 under the OBR scenario. By the end of 2025, that could stand at 2.1 under the BoE scenario and just 1.1 under the OBR scenario (whereby the economy recovers faster).
Line chart showing the ratio of unemployed people per vacancy from 2001 to the present. The ratio remained near historic lows in the three months to October 2022 at just 1.0. Forecasts from the Bank of England (BoE) and Office for Budgetary Responsibility (OBR) suggest that ratio may remain low by historical standards over coming years.
Beginning of a ‘Great Unretirement’?
Latest ONS figures showed a drop in economic inactivity among the 50-64 age group, which had been a key factor behind shrinking labour force participation driving labour market tightness. This could be an early sign of cost-of-living pressures prompting some people to rethink their plans.
However, the number of inactive people aged 50-64 still stands over 300,000 above where it was on the eve of the pandemic, while overall inactivity remains more than 560,000 above pre-pandemic levels. Offering older workers the information, retraining opportunities, support and flexibility to re-enter the workforce will be key to easing hiring challenges across the economy.
Real-pay squeeze to continue with public sector pay growth languishing
Pay data from the ONS has highlighted one of the largest disparities in wage growth between the public and private sectors seen to date. While private sector regular pay was up 6.9% year on year (y/y), public sector pay was up just 2.7% y/y.
It is against this backdrop that October saw the highest number of working days lost due to labour disputes since 2011, with that figure set to climb over the winter with further rounds of strikes across swathes of public services.
Indeed posted wage data signalled 6.1% y/y pay growth in November (the same rate as indicated by ONS figures). This data — which, as a measure of advertised pay for new hires, may be significantly forward looking — suggests pay pressures may have peaked. This appears to be particularly the case for lower-wage jobs, as the uncertain economic climate begins to weigh more heavily. Though it may be too soon to call a turning point, it suggests that the risk of a wage-price spiral may currently be limited.
As the cost of living crisis continues to bite, no occupational categories within the Indeed posted wage data are seeing pay growth keep up with inflation, which was running at 9.3% y/y on the CPIH measure in November and 10.7% y/y on the CPI measure.
Redundancy notifications rise but remain low
Redundancy notifications are an important early indicator of the health of the labour market heading into 2023. November saw an uptick in redundancy notifications to 22,580, the second-highest since March 2021, albeit well below the pandemic peaks.
If redundancy notifications stay fairly modest, that could suggest an increased possibility of a soft landing for the labour market, with unemployment likely staying low for a while.
Jack Kennedy, UK Economist at Indeed said, “There’s little doubt that the UK economy faces some daunting challenges in 2023, however, the labour market is in a strong position to withstand the forecast turbulence.
“Businesses may be nervous about recession, yet staffing shortages remain the pressing issue for many right now. Further improvements in labour force participation, particularly in terms of aiding the return of more older workers, could ease these pressures and provide a fillip to the economy in the process, but there’s still a long way to go on that front.
“If the labour market does stay reasonably tight despite a recession, that could allay fears of the balance of power shifting too far in favour of employers, some of whom might seek to curtail post-pandemic forms of flexibility such as remote work which remains highly desired by candidates. Searches on Indeed containing terms related to remote work have risen over the course of the year to stand at record highs. For jobs that can’t be done remotely, other forms of flexibility including around hours and shift patterns have been a focus for employers struggling to hire.
“The labour market has experienced an exceptional period during the pandemic recovery phase and it’s now about to begin a new chapter. The hope is that the UK is poised to weather this shift, and that it will prove to be a gentler transition with less dramatic fall-out than past economic downturns.”