The UK’s labour market recovery is showing signs of a slowdown, with the latest figures from the Office for National Statistics (ONS) revealing a decrease in the unemployment rate to 4% for June to August 2024. Meanwhile, economic inactivity fell to 21.8%, driven by initiatives to bring more people into the workforce. However, the annual growth in regular pay (excluding bonuses) has dipped slightly to 4.9%, down from 5.1% for the previous three-month period.
Jeanette Wheeler, Chief HR Officer at MHR, described the latest report as showing that “the handbrake is slowly coming off the labour market” but highlighted that declining wage growth and vacancies, which are down by 14.4% year-over-year, could suggest a cooling trend. "With the Budget around the corner,” Wheeler stated, “we can expect the way employers and employees approach the job market to shift once more, and there is hope the Budget will provide certainty for employers to invest in and boost recruitment.” She underscored the need for businesses to monitor their recruitment and retention closely, especially as potential legislative changes loom.
In response to the report, Jonathan Firth, VP & UKI Recruitment Solutions Head at LHH, pointed to hiring freezes, which currently affect one in five HR leaders. He expressed optimism about the new year: “There is an expectation that vacancies will pick up again in the next few months.” He also noted the importance of compliance, particularly in light of the new Employment Rights Bill, which could redefine best practices in flexible working and family-friendly policies.
"The onus is on employers to ensure that they are compliant, whilst remaining competitive in the market to attracting top talent" Firth commented.
'Mixed picture' for businesses in latest ONS data
Novo Constare, CEO and Co-founder of Indeed Flex, said: "The UK job market showed some positive signs and further loosening in August, likely boosted by the Bank of England’s pivotal decision to lower the base rate.
"With borrowing costs going down, businesses have more confidence to invest and expand, which means they’re also more likely to start hiring again. This has contributed to falling unemployment rates, as more people are finding jobs or re-entering the workforce.
"Meanwhile, the UK economy grew by 0.2% in August after a couple of months of stagnation, which is encouraging. While growth might slow a bit in the second half of the year, the risk of a recession seems low.
"However, the upcoming October budget might bring tax increases, which could dampen some of this optimism.
“Higher taxes could hold back business spending and slow down growth plans, making the recovery in the job market a bit more challenging despite the benefit of lower interest rates.
"However, looking ahead to November, the Bank of England’s next move to lower or hold the base rate will be important. Experts are predicting another rate cut, which could further boost confidence for both businesses and consumers — leading to more hiring and investment.
“Overall, the picture is mixed. While there are positive signs of growth and job recovery, businesses and the labour market will need to navigate potential challenges, including possible tax hikes and slower economic momentum. The key will be balancing optimism with caution as the economy works through these factors."
Employer-friendly Budget needed as pay growth slows, says CIPD
James Cockett, senior labour market economist for the CIPD, commented on the implications for employers and employees alike: “Employers will be seeking a Budget that can boost business confidence and set out measures to support hiring and increase investment in workforce skills.” He warned that changes to unfair dismissal rules should not discourage hiring, particularly among young or inexperienced workers who may need additional support.
"It will be important to ensure that changes to unfair dismissal rules announced in the Employment Rights Bill don’t increase the cost and risk of hiring permanent staff or undermine the prospects of groups such as young people who might need more support or training when they start work" he added.
“Tackling economic inactivity continues to be on the government’s priority list, with the number of people not working due to ill health remaining high. It’s crucial the government continues the focus on improving access to occupational health services which, together with plans to reform Statutory Sick Pay, can help support more people to stay in work.”
With economic challenges persisting, employers and industry leaders are hopeful that the upcoming Budget will provide the necessary stability to support the UK’s labour market and ensure continued investment in skills and recruitment.
