UK labour market shows slowdown signs in run-up to employer tax hike

Britain's labour market showed signs of weakening in the run-up to this month's increase in a tax on employers, according to data published on Tuesday, but wage growth remained strong, posing a conundrum for the Bank of England (BoE).

Vacancies fell below their pre-Covid-19 pandemic level for the first time since the three months to May 2021 in the three months to March, the Office for National Statistics (ONS) said.

Provisional data given by employers to the tax authorities showed the number of employees fell by 78,000 in March and February's figure was revised to show a drop of 8,000 compared with a previous estimate of a 21,000 gain.

Jack Kennedy, senior economist at jobs website Indeed, said the figures suggested a modest softening in the labour market. “However, it’s also a look in the rear view mirror as storm clouds have continued to gather amid whipsawing [US President Donald] Trump tariff developments, the rise in national insurance contributions, and minimum wage increase having come into force,” Kennedy said.

Trump's tariffs onslaught is expected to slow the world economy, hurting Britain alongside the direct impact of new US duties applied to its exports.

Yael Selfin, chief economist at KPMG UK, said the rise in labour costs in April, when finance minister Rachel Reeves' increase in social security contributions came into effect, was soon likely to slow pay growth.

Britain's minimum wage also went up by almost 7% this month.

While some of ONS figures showed weaker hiring, pay growth was too strong for the BoE to feel confident about hitting its 2% inflation target.

The central bank is trying to gauge whether inflation pressures in the labour market are easing sufficiently for it to continue cutting interest rates. It is also watching for the economic impact of Trump's trade tariffs.

The ONS said average weekly earnings, excluding bonuses, rose by 5.9% in the three months to February compared with the same period a year before, faster than a revised 5.8% increase in the three months to January.

Private-sector pay excluding bonuses, a gauge of domestic inflation pressure watched closely by the BoE, rose by 5.9% compared with the same period a year earlier, unchanged from the pace in the three months to January.

A Reuters poll of economists had pointed to growth of 6.0% in both measures of basic pay.

The ONS said Britain's unemployment rate, which is based on a survey the agency is overhauling and is no longer considered an accurate gauge of the jobs market, held at 4.4%.

Reuters