Good or bad? Experts deliver verdict on latest ONS labour market data

Wage growth slows, vacancies fall and workforce jobs hit record 36.8 million

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UK wage growth has slowed as the estimated number of vacancies fell in the latest quarter, data from the Office for National Statistics (ONS) has shown, in a sign that pressures on the labour market are “cooling”.

December’s Labour market overview revealed that the estimated number of vacancies fell for the seventeenth consecutive period, by 45,000 between September and November to 949,000 vacancies. 

The ONS said this was the “longest consecutive run of quarterly falls ever recorded, but still above pre-Covid-19 pandemic levels”. 

In addition, pay growth eased at the fastest pace for two years, as earnings excluding bonuses were 7.3 per cent higher in the three months to October year on year, down from 7.8 per cent in the three months to September.

Jack Kennedy, senior economist at hiring platform Indeed, told People Management: “The labour market continues to gradually cool. Vacancies fell… and are now down 27 per cent from their peak, though remain above pre-pandemic levels.

“The unemployment rate was stable at a still fairly low 4.2 per cent, while employment and inactivity were also unchanged, albeit these estimates continue to have only experimental status. Hiring conditions are likely to continue to gradually ease in 2024 as the labour market rebalancing proceeds.”

According to figures from the latest KPMG and Recruitment & Employment Confederation (REC) Report on Jobs survey, a “weak economic outlook and greater caution among employers” dampened recruitment during November. 

The KPMG and REC analysis also discovered a decline in permanent staff and temporary fillings in the public and private sectors, as well as a minor decrease in vacancies.

Based on today's ONS data, Neil Carberry, chief executive of the REC, said: “There is a risk of inflation returning and lower growth if we don’t address the challenges raised by shortages through skills investment, focus on productivity and have a more sensible approach to immigration for work.”

Jim Moore, employee relations expert at HR consultants Hamilton Nash, told People Management that 17 consecutive months of decreasing vacancies might suggest that UK employment is the picture of “good health”. 

However, he added: “A closer look at some sectors tells a different story. Hospitality, health and manufacturing businesses are still reporting significant labour shortages, with industry leaders warning of a shrinking talent pool.

“A steep increase in the minimum salary required for skilled worker visas will likely exacerbate hiring issues in those sectors.” 

While job board reported an 18 per cent decrease in job posts this year compared to 2022, it received 29 per cent more applications, indicating a more competitive market. “Looking ahead to 2024, we anticipate this trend of an employer-led market to persist, with a sustained focus on strategic hiring decisions and talent acquisition,” said James Reed, chairman of Reed.

“A rise in applications across the board is indicative of the richness of talent available to employers, making it a good time for them to take advantage of this and bolster their workforce.”

Labour shortages and strikes still present 

“The labour market can be characterised as having too many jobs and not enough people to fill them,” said Jon Boys, senior labour market economist at the CIPD. “In recent data, we can see the slow reversal of this trend, but the ship will take some time to turn.

“Flagging response rates to the labour force survey have left us with only an abridged clutch of statistics from which to garner insights. However, we can say with confidence that unemployment remains low, while vacancies and wage growth remain high, albeit lower than in recent periods.”

Boys added: “Though 2024 could bring respite to employers struggling to recruit, for now the labour market remains competitive. In such conditions people have options and employers and policymakers should reach for the carrot before the stick when seeking to get people into work. 

“Creating quality jobs that enable people to balance competing priorities is key. This means more than pay, but careful job design too.” 

The figures also showed there were 131,000 working days lost because of labour disputes across the UK in October 2023. The ONS said three fifths of these were in the health and social work sector.

Only 49,000 workers were involved in industrial action, the lowest number since June 2022.

Pay growth remains high 

The ONS data also indicated that annual growth in regular pay excluding bonuses stood at 7.3 per cent in August to October 2023, while annual growth in average total pay including bonuses was 7.2 per cent.

In real terms, adjusted for inflation using the consumer price index, growth in total pay rose by 1.3 per cent year on year and regular pay rose by 1.4 per cent.

Louise Murphy, economist at the Resolution Foundation, said: “The UK’s historically high level of pay growth over the summer has been a major concern for policymakers, as it risks keeping inflation higher for longer for everyone.

“But just as price pressure fell back sharply in October, so too has pay growth, as the big rises from earlier in the year fall out of the data. This will reassure Bank of England policymakers seeking to bring inflation down.”