Think tank says that the job market is in recession territory

A think tank warned that the UK’s jobs market was “in recession territory”, and that the Chancellor should act quickly before the spring statement.

The Resolution Foundation reports that the UK’s economy has suffered a marked decline since the October 2024 autumn budget.

The employment data shows a slowdown in hiring, and the GDP is projected to fall by 1,2%. CPI inflation expectations and interest rates are both up by 0.4 points compared to the forecasts made by the Office for Budget Responsibility at the time the autumn budget was released.

The government faces major challenges when it comes to meeting its fiscal rules due to the rising interest rates and the sluggish growth of the economy. The think tank says that this could lead to difficult policy decisions. Rachel Reeves will now need to introduce additional fiscal tightening on 26 March.

James Smith, Research Director at the Resolution Foundation said that the UK’s economy outlook has declined significantly since the autumn budget. Weaker economic growth and higher expectations of interest rates are likely to transform the UK’s projected surplus of PS10bn into a deficit around PS5bn.

The Foundation believes that this decline will cause the Office for Budget Responsibility (OBR) to change its forecast for current balance. It is expected to shift from a surplus of 9.9 billion PS in 2029-30, to a deficit around 4.4 billion PS.

Smith, however, insisted that Reeves should not affect the living standards for lower-income families when addressing the deficit.

“With the job market in recession, households with lower incomes shouldn’t be the ones to bear the brunt.” He added. She should also avoid turning her spring statement into an ‘adhesive’ Budget. This would undermine long-term welfare reform by focusing on short-term saving that could do real harm.

The Foundation highlights that the Chancellor may consider reducing spending before the Spending review. It believes lowering annual real increases from 1.3% to 1,2% between 2026-2027 and 2029-30 will save PS3 billion in 2029-30. The Foundation warned, however, that, with departments not protected already facing PS9.7bn in cuts next, further reductions would put strain on vital services such as social care, police and the justice system.

The Foundation suggests that the government should focus on tax increases rather than target incapacity benefits and disability benefits as a way to reduce expenditures and promote employment. The Foundation highlighted that extending the freeze of personal tax thresholds to 2029-30 would generate approximately PS8 billion. This approach will not impact short-term living conditions as its implementation begins in April 2028. 80% of the additional revenue would come from the households on the higher end of the income spectrum.

Smith added that if tax increases are not included in future budgets, they will be even harder to achieve.

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