UK Labor Market Shows Signs of Cooling Amid Weak Wage Growth and Tax Increases

UK Labor Market Slows Amid Weakest Wage Growth Since 2021

The UK's labor market showed further signs of cooling in October, with the weakest wage growth since early 2021, according to a survey by the Recruitment and Employment Confederation (REC) and KPMG. The starting pay for permanent roles slowed to 52.5 in October, down from 52.8 in September, marking the lowest level since the pandemic's early days.

Decline in Hiring and Rising Candidate Availability

The REC’s permanent placements index also fell to 44.1 in October, down from 44.9 in September, signaling a slowdown in hiring. The survey indicated that businesses are holding off on recruitment amid uncertainty surrounding the new Labour government’s budget. In contrast, the number of available candidates increased for the 20th consecutive month, with temporary staff availability rising at its fastest pace in nearly four years.

Impact of Tax Increases on Hiring

Last week’s budget, which included £40 billion in tax hikes, is expected to further dampen hiring and wage growth. Finance Minister Rachel Reeves announced higher social security contributions for businesses and an increase in the minimum wage, measures that could strain companies’ finances and slow down recruitment.

Bank of England’s Response

The Bank of England, closely monitoring wage growth to assess inflation pressures, reduced borrowing costs to 4.75% from 5% in its latest meeting. Neil Carberry, REC’s CEO, noted that the pay data provides little justification for the Bank to halt further interest rate cuts.

For further details, you can read more from these sources:

The REC​

KPMG on the budget's impact.