Recent data indicates that UK businesses are reluctant to recruit new staff or replace those who leave, resulting in a significant decline in job openings.
From March to May, job vacancies decreased by 63,000, coinciding with a slight uptick in the unemployment rate.
According to Liz McKeown, director of economic statistics at the Office for National Statistics (ONS), there is a clear trend of deterioration in the labor market, manifested by a drop in payroll numbers.
In April, the introduction of higher National Insurance Contributions for employers coincided with an increase in the national minimum wage.
The total number of active job postings fell to 736,000 during the three months leading up to May.
McKeown’s survey feedback reveals that several firms may be holding back on hiring or opting not to fill positions left by departing employees.
Additionally, the unemployment rate increased from 4.5% to 4.6%, marking the highest level in nearly four years, and projections suggest it may rise further, as noted by Yael Selfin, chief economist at KPMG UK.
Selfin expressed concerns that businesses might seek to mitigate rising employment costs through layoffs and reduced hiring efforts, forecasting an upward trend in unemployment in the coming year.
Despite wages having increased by an average of 5.2% between February and April, this figure has slowed from a previous spike of 5.6%. Nonetheless, it still surpasses the inflation rate of 3.5% as of April.
Chancellor Rachel Reeves previously announced the rise in National Insurance contributions in last October’s Budget, anticipating an additional £25 billion in revenue by the end of the current parliamentary term.
Employment Minister Alison McGovern highlighted that since Labour’s election victory last July, 500,000 more individuals have entered the workforce, emphasizing greater training opportunities for citizens.
Conversely, Conservative shadow business secretary Andrew Griffith expressed disappointment over the rising unemployment rate, attributing it to the government’s £25 billion jobs tax that businesses are currently absorbing.
Liberal Democrat Treasury spokesperson Daisy Cooper criticized the Chancellor’s approach, arguing that this burdensome jobs tax is stifling the growth potential of local economies and small enterprises. She urged a change in direction ahead of the upcoming Spending Review.
Upcoming on Wednesday, Reeves is set to outline the Spending Review, determining funding allocations for essential public services such as healthcare, education, and policing, as well as infrastructure projects.
While the NHS and defense sectors are expected to receive significant funding boosts, other departments may face tighter budgets.
According to Capital Economics, while the UK job market isn’t facing immediate collapse, the Deputy Chief UK Economist Ruth Gregory asserts that most indicators clearly indicate a decline in labor demand.
The number of individuals on payroll reduced by 55,000 from March to April, with projections estimating an additional drop of 109,000 in May.
However, the ONS cautioned that these figures are preliminary and subject to change as more data from HM Revenue & Customs becomes available.