According to the latest Labour Market Overview published by the Office for National Statistics, the UK labour market is a mix.
The number of vacancies has dropped by 118,000 from the same time last year (October to December 2023). This is the 30th consecutive time that vacancies have fallen, and now they are just slightly above pre-pandemic figures.
The UK is now experiencing its longest streak of consecutive real pay increases since 2019. But there are still concerns about the sustainability and longevity of these gains, as they seem to be driven more by inflation than productivity improvements.
The employment rate is 74.8 percent. This represents a slight decrease from the previous quarter, but is stable when compared with last year. The unemployment rate has increased to 4.4 per cent, both in the quarter and over the past year. Inactivity in the economy due to long-term illness has risen to 2,81 million.
Private sector wages grew by 6 percent, mainly in finance, manufacturing and retail. Pay in the public sector grew at a rate of 4.1 percent.
The Labour Market and Economic Pressures
Rebecca Florisson is the Principal Analyst for the Work Foundation. She described the statistics as “mixed”. She said that although headlines may focus on pay increases, other indicators are “sluggish”.
“Regular wages are up 5.6% over the past year, driven by growth in private sector salaries. “While real wage growth of 2,5% on the calendar year is good for workers, these gains seem to be driven by pay catching-up with price increases and not by increased productivity or growth in the economy,” she said.
Florisson expressed concern about possible job losses, as businesses will be facing rising National Insurance Contributions and minimum wage increases by April 2025.
Florisson stated that “Vacancies continue falling, indicating a cooling job market”, adding that it will be difficult to meet the government’s goal of 80 percent employment in a stagnant economy.
She added that “de-risking” the return to work of the nearly record 2,81 million people who are economically inactive because of long-term illness could be the key to increasing the employment rate. This requires both employment support and, more importantly, better access to flexible, high-quality jobs.
Jack Kennedy, Senior Economic Analyst at Indeed, shared these sentiments and cited “sticky wage increases” as the Bank of England’s main concern. He said that businesses were preparing for higher labor costs in April. This could lead to increased prices or cost-cutting. Kennedy said that remote and hybrid work are still prevalent despite the challenges.
Employers who still want to hire can use location flexibility as a powerful tool. “At a time when employers may be looking to hire, flexibility is a great way to attract top talent,” said he.
The Skills Gaps and the Recruitment Challenges Continue
Michael Stull (Director at ManpowerGroup UK) expressed concern over the continued decline in vacancies which is now nearing pre-pandemic level. He said that the employer National Insurance increases, and threshold changes set to come into effect in April, may exacerbate the hiring slump.
Stull cited ManpowerGroup’s 2025 Global Talent Shortage Survey which indicates that although the UK’s skill gap may have reached its peak it remains higher than global average.
He said that while the reduction in the number of jobs is certainly welcome, the majority of organisations must continue to work hard to close the skills gap.
Neil Carberry (CEO of the Recruitment and Employment Confederation, REC), noted that the labour market had been weakening in the months leading up to the Christmas holiday. However, he suggested that the months of January and February would be crucial for determining if hiring activity would rebound.
He said: “The issues that we’ve seen on the labour market in recent years are still evident in today’s release, namely a lower employment rate than pre-pandemic levels and a higher level of economic inactivity.” But these challenges could be compounded by short-term concerns about cost, leading to today’s increase in unemployment. This is not an unreliable jobs market. The unemployment rate is still low by historical standards, and the number of vacancies is high. However, the trend is worrying.
Carberry called for more government clarity about growth plans and warned that cost pressures may hinder progress towards employment targets.
Flexibility is the key to retaining talent
Natalie Matalon spoke about the importance of flexibility when addressing challenges in the labour market. She said that although wage growth has improved, workers are still dissatisfied with their salaries. Salary satisfaction is down to just 63 percent. Candidates continue to place a high priority on flexible working hours.
Matalon stated that “Companies who offer clearer flexibility will have an advantage in attracting talent. This is especially true for those not currently active in the labor market.”
Catherine Foot, Director at Phoenix Insights focused on the economic inactivity of over-50s. She stated that barriers to employment for this group need to be addressed to promote economic growth.
She said that the decline in vacancies made it more important than ever to make sure roles available were flexible. “Government, businesses and individuals must work together to eliminate employment barriers. This includes more inclusive recruitment practices, paid carer’s leave and tailored career advice to help people retrain or stay in the workforce for longer.
The Employment Rights Bill of the government and Get Britain Working White Paper are both positive steps. However, further targeted actions are needed to create an age-friendly labour market.
Youth Unemployment Crisis
Dr Andrea Barry Principal economist, Youth Futures Foundation pointed out the youth unemployment crisis. ONS data show that the rate of unemployment for young people who are not in full-time school has increased from 11% in the past year to 12.7%. Inactivity also increased from 19.4% up to 20.9%.
Dr Barry stated that “Falling in to unemployment leaves deep and long-lasting scars on young people. Not just with regard to income or job prospects, but also their mental health.” There is also an enormous economic case. To achieve the 80% target set out in Get Britain Working, the government must make youth unemployment a top priority.
By reducing the UK’s NEET rate, we could add 500,000 young people to the workforce or to education. This would boost the UK economy by PS69bn.
