The UK labour market has weakened further, with a significant drop in the number of people on company payrolls and a marked slowdown in wage growth, according to the latest official figures.
Payrolls Shrink and Wages Cool
Data from the Office for National Statistics (ONS) revealed that the number of employees on payrolls fell by 184,000 in December compared to the same month a year earlier. The total now stands at 30.2 million.
Concurrently, wage growth has decelerated. Excluding bonuses, average earnings growth slowed to 4.5% in the three months to the end of November, down from 4.6% in the previous period. When bonuses are included, the rate slipped to 4.7% from 4.8%.
Liz McKeown, Director of Economic Statistics at the ONS, stated: "The number of employees on payroll has fallen again, with reductions over the last year concentrated in retail and hospitality, and reflecting ongoing weak hiring activity." She added that "wage growth in the private sector has slowed to its lowest rate in five years."
Sectoral Weakness and Economic Headwinds
The downturn has been particularly acute in consumer-facing sectors. Shops, restaurants, hotels, and pubs have shown notably weak hiring, bearing the brunt of the slowdown. The overall unemployment rate remained steady at 5.1% for the three months to November, but the number of jobless people has risen to 1.8 million.
Economists point to several factors contributing to the cooling labour market:
- Employer uncertainty following Chancellor Rachel Reeves's pre-budget announcements of £26bn in tax-raising measures.
- Increased costs for businesses from rises in employers' national insurance and the minimum wage.
- A global economic dampener from former US President Donald Trump's "liberation day" tariffs last April.
- A broader fall in vacancies, which are now below pre-pandemic levels.
Furthermore, the boom in artificial intelligence, while creating tech jobs, is causing some organisations to re-evaluate hiring policies for entry-level white-collar roles.
Outlook and Monetary Policy Implications
The weakening jobs market and slowing wage growth are key factors being monitored by the Bank of England. City economists now widely expect the central bank to respond by cutting interest rates at least twice this year, potentially bringing the base rate down to 3.25% from its current level of 3.75%.
This combination of falling employment and moderating pay increases suggests the UK economy is losing momentum, presenting a fresh challenge for policymakers aiming to balance inflation control with supporting economic activity.
