Labour Market Holds, But Change Is Coming

While today’s labour market figures point to a stable and more positive picture than seen in recent months, in reality the landscape is shifting for UK employers.

Although unemployment is holding at 5% and vacancies remaining at 3.9% - coupled with an increase in redundancies there is a clear lack of hiring confidence in the UK. With little change in wage growth at 3.4% for regular pay and 4.1% for total pay, employers remain cautious. This caution will continue until geopolitical uncertainty, both at home and abroad, stabilises.

Despite the uncertainty, UK businesses have become increasingly resilient, with change and a lack of clarity becoming the norm. Periods of disruption also create opportunities for innovation and reinvention and that is what we are seeing in the UK. Businesses are increasingly taking a proactive approach - readying themselves for further AI adoption, workforce transformation and shifting business priorities. That said, UK business cannot continue to work in this vacuum of change and disruption and are urging for stability.

Today's data shows a further deterioration in employer demand for labour, with the number of vacancies down 3.9% on the quarter, hitting their lowest level in five years, and the number of payrolled employees down 100,000 on the month.

This weakening of the jobs market is a direct result of the Government's employment policies; by increasing the costs and risks involved with hiring via the Employment Rights Act, consecutive years of above-inflation minimum wage increases, and the employer National Insurance increase, the Government has materially damaged the business case for taking on staff.

The Government must urgently address the rising cost of employment if it is to reverse this decline. However, recent IoD research has found that its current approach of one-off incentives, such as the Youth Jobs Grant, will not undo the damage done to employers' ability and willingness to hire more staff.

The only sustainable way to encourage employers to create more jobs is to remove barriers to hiring. This should begin with meaningful tripartite negotiations with business and unions on the implementation of the Employment Rights Act, including on trade union access to workplaces and guaranteed hours contracts.