UK labour market expansion to ease

Following a temporary reversal during the spring, which may have been linked to pre-election uncertainty, the labour market resumed its strong pace of expansion during the summer and early autumn. Forward-looking surveys indicate that employment growth is set to continue, and on current trends, employment looks likely to rise by over 300k in 2016. 

However, the pace may slow a little as firms compete more intensively for workers in a tightening labour market. That tightening is still likely to lead to accelerating wage pressures, even though the recent momentum of pay growth appears to have faded somewhat and may continue to weigh on the data around the turn of the year. 

Headcount expansion could also be slowed by the April 2016 introduction of the National Living Wage, which, at £7.20 per hour for employees aged 25 and over, will be 50p above the corresponding National Minimum Wage, introduced in April 1999. For the most affected sectors (retail, hospitality and residential care), the NLW may lead to a combination of cost cutting and attempts to pass on the costs through price increases.