Pay squeeze is back as jobs market runs out of steam

Wages stall as Britain braces for another cost-of-living crunch

Britain’s workers are being squeezed from both sides. Wage growth is slowing just as the Iran conflict pushes energy costs and inflation higher, while businesses faced with rising employment costs are increasingly reluctant to hire. The jobs market isn’t collapsing, but it is barely moving, and young people are being hit particularly hard. With more than a million 16-to-24-year-olds looking for education, employment or training opportunities, the message for government ahead of the autumn Budget is simple: make it easier and cheaper for small businesses to create the jobs the country desperately needs.

WAGE GROWTH STALLS AS NEW COST‑OF‑LIVING CRISIS LOOMS

Is the new PM facing a jobs market that’s running out of steam?

The Iran war fallout is hitting pay packets, inflation is rising again, and young people are being squeezed out of work. However, economists say our jobs market is softening rather than collapsing.

New ONS figures show wage growth slowed again in June, piling pressure on workers already hit by soaring energy bills and rising prices triggered by the Iran conflict.

Total earnings growth fell to 4.1% in the three months to June down from 4.3%. However, that wasn’t as big a fall as expected and, while private‑sector pay excluding bonuses slumped to 2.8%, the weakest since October 2020, public‑sector pay jumped to 6.1%, distorted by the timing of NHS pay awards.

The figures come from the Office for National Statistics and show “some softening” in the jobs market, a sign that the sharp slowdown earlier this year may be stabilising but not improving.

Pay Growth slowing

Inflation is expected to hit close to 3% in July after energy bills soared, meaning workers could soon face a fresh squeeze as rising prices catch up with slower growing wages.

Real pay growth is still positive at 1.3%, but economists warn the gap is narrowing fast.

Vacancies continue to fall as small businesses warn they can’t hire because of higher employment costs. Payroll numbers dropped by 13,000 in July matching June’s fall.

Unemployment stayed at 4.9%, defying forecasts of a drop.

Young People

The new prime minister has promised “breathing space” for households and a crackdown on unemployment, especially among young people, who are being hit hardest. The number of 16‑ to 24‑year‑olds looking for education, employment or training (Leet) is above one million for the first time in more than 10 years.

Alan Milburn’s youth jobs review which is due in full in the autumn (we’ve already had fairly detailed interim reports) will call for:

• Turbocharged internships for young people with special educational needs

• New duties on primary schools to identify children at risk of dropping out at 16

Work and pensions secretary Pat McFadden says reforms to welfare payments and a new youth jobs grant will help businesses hire young people, but the labour market remains stubbornly soft.

Flat jobs market

Employment, unemployment and inactivity are broadly stable, and vacancies are edging down but levelling off. The jobs market is soft but so far, it’s not falling apart. The slowdown could strengthen the case for the Bank of England to hold interest rates, with Threadneedle Street signalling that weaker labour demand may help prevent inflation becoming entrenched.

The Chartered Institute of Personnel and Development (CIPD) said last week that the UK jobs market has “largely stopped moving” because employment costs are stopping businesses hiring and that’s blocking the route for young people into work. Private sector employment intentions are stuck at the lowest ever level outside of the covid-19 pandemic.  

New cost‑of‑living crisis brewing

The Iran war has rattled global markets, pushed up energy bills and reignited inflation fears. With wage growth slowing and household budgets under strain, the UK is heading into a difficult autumn with the budget looming on 28th October. The government faces a brutal balancing act to:

• Ease pressure on households

• Get more young people into work

• Manage rising unemployment risks

• Avoid fuelling inflation

The Challenge

Wage growth is slowing, inflation is rising again, vacancies are falling and young people are being squeezed out of work. The jobs market is soft but not collapsing. It all adds up to a tough autumn budget. Until then the business organisations are all telling the Chancellor what to include in it and what to leave out. Please just make it easier and more affordable for small and micro businesses to hire workers. That will help with all the challenges the Government is up against.

The warning lights are flashing. Workers are being squeezed, businesses are cautious, and the government is under pressure to act fast before the cost‑of‑living crisis reignites.