The UK’s jobs market has shown further signs of cooling after a rise in unemployment in September while pay growth slowed, as business leaders warned the budget could hit hiring demand and lead to higher prices.
Figures from the Office for National Statistics (ONS) show the rate of unemployment rose to 4.3% in the three months to September, up from 4% the previous quarter, amid broader signs of a slowdown in the jobs market.
While the ONS warned its jobs market figures should be treated with caution amid data collection issues, separate figures showed the number of employees on company payrolls fell by 9,000 over the quarter and vacancies fell for a 28th consecutive month to the lowest level since May 2021.
The government has come under pressure from businesses after outlining tax increases in the budget, including a rise in the national minimum wage and employer national insurance contributions (NICs) that bosses have said could lead to job cuts.
Trade groups warned the latest figures showed the jobs market was slowing as companies braced for higher costs.
“Many firms are telling us they are being forced to raise prices, put recruitment and investment plans on hold and look for ways to reduce their costs,” said Jane Gratton, the deputy director of public policy at the British Chambers of Commerce. “There is a limit to how much additional cost they can absorb.”
Matthew Percival, of the CBI lobby group, said: “These figures come against a backdrop of rising concern about spiralling employment costs which are set to increase following last month’s NICs rise, the employment rights bill and the latest increase in the national living wage.”
Asda and Sainsbury’s last week said the tax rise would cost them £100m and £140m respectively as they warned they could pass these costs on in the form of higher prices, while Tesco faces a £1bn increase in its national insurance bill this parliament.
However, other economists have said Rachel Reeves’s budget could represent a downpayment to fix public services that would help grow the available pool of labour by supporting more people to find a job.
Andy Haldane, the former chief economist at the Bank of England, told the Guardian the “fixation on the extra taxes” was unhealthy. “You can’t have it both ways. If you want to build the right business environment you require investment in [public services]… and that requires us to pay for those things,” he said.
According to the latest snapshot long-term youth unemployment remains at the highest level since the start of the Covid pandemic, while more than 9 million people are economically inactive, meaning they are neither in a job or looking for work.
Liz Kendall, the work and pensions secretary, said the government was prioritising supporting people to find work through a £240m investment plan, before a white paper on the issue expected within weeks.
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She added: “2.8 million people – a near record number – are locked out of work due to poor health. This is bad for people, bad for businesses and it’s holding our economy back.
Highlighting a further slowdown in the jobs market, annual growth in employees’ average regular earnings, excluding bonuses, in Great Britain eased to 4.8% in the three months to September, down from 4.9% in the three months to August.
Economists said the figures were in line with Bank of England forecasts, and could encourage the central bank to maintain its path of interest rate cuts after reducing the cost of borrowing last week.
However, the Bank’s chief economist, Huw Pill, said the latest figures showed that inflationary pressures remained too high for comfort. “Pay growth remains quite sticky at elevated levels and levels that – given the outlook for productivity growth in the UK – are hard to reconcile with the UK inflation target,” Pill said at a conference organised by the Swiss bank UBS.
The rate of pay growth remains significantly above inflation, which dropped to 1.7% in September, helping households to rebuild their finances after the biggest hit to living standards in decades.
Pay growth including bonuses also rose from 3.8% to 4.3%, although this was largely due to one-off civil service payments.
