Employers 'tapping the brakes' on pay and hiring, official data reveals

Alongside one of the largest falls in real pay, latest ONS figures also highlight the greatest difference in private and public sector wage growth on record

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Wages in the UK fell by 2.7 per cent – among the largest dips in growth since comparable records began in 2001 – while vacancies declined by 65,000 on the quarter, official data has shown. 

Figures from the Office for National Statistics’ (ONS) Labour market overview for December 2022 revealed the drop was slightly smaller than the largest fall in real pay on record, which saw wages decrease 3 per cent from April to June 2022. 

The data also showed average regular pay growth for the private sector was 6.9 per cent in August to October 2022, compared to 2.7 per cent for the public sector – the largest growth rate and difference on record. 

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Meanwhile, between September and November, despite five consecutive falls, the number of vacancies was still at a “historical high” of 1,187,000. The report said this continued decline was reflective of “uncertainty” across industries as respondents continued to cite ‘economic pressures’ as a reason for holding back on recruitment.

Jonathan Boys, labour market economist at the CIPD, said the fall in vacancies suggested employers were “tapping the brakes on hiring, but are a long way from shifting into reverse”. 

Boys pointed out that it takes months to recruit so vacancies were a good “leading indicator” of what’s coming around the corner, but added that the cost of living crisis was likely to be ongoing. 

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“Few people are seeing their pay keep up with rising prices as real earnings are down 2.7 per cent,” he said. “Although inflation may have ‘peaked’, even as it comes down prices will still be going up. The cost of living crisis has some time to run yet.” 

The employment rate for August to October 2022 increased by 0.2 percentage points on the quarter to 75.6 per cent, but the ONS said this was still below pre-pandemic levels.

The unemployment rate for the same period increased by 0.1 percentage points on the quarter to 3.7 per cent, and the number of people unemployed for up to six months rose.

The economic inactivity rate – which is defined by the ONS as people not in the labour force as they are not in employment, but do not meet the internationally accepted definition of unemployment because they have not been seeking work within the last four weeks, or are unable to start work in the next two weeks – decreased by 0.2 percentage points to 21.5 per cent.

However, the report said the decline in economic inactivity was actually “driven” by those aged 50-64 years leaving the labour market altogether and retiring. People who were classed as economically inactive because they “did not want a job” also drove the figure down. 

Neil Carberry, chief executive of the Recruitment & Employment Confederation, said there was still a “lot to do” to turn the trend around, as employment was still “well below” pre-pandemic levels, but that the labour market was “still defined” by a labour shortage, which he said was “constraining” its ability to grow. 

“That’s why businesses need to work with their recruiters on innovative and effective strategies, and all firms are looking to government to act on some of the barriers – from skills to immigration, and right to work checks to employment support, there is a huge amount the government could do to fire up our labour market,” said Carberry. 

Tania Bowers, global public policy director at the Association of Professional Staffing Companies, said employers needed support as they faced a recession where skills shortages were still prevalent. “The country’s labour market is in need of support to become more appealing both to flexible workers and international experts,” said Bowers. The employment bill will have a role to play in supporting this, but “the skills agenda needs to be reinvigorated across government” and action is needed swifty so businesses can “bounce back strong” from a recession, she added. 

The report also found that a total 417,000 working days were lost because of labour disputes in October 2022, which is the highest since November 2011.