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UK employers cut staff following the Labor government’s tax hike budget even as wage growth accelerated, official data showed on Tuesday.
Payroll employment fell by 0.1 percent between October and November and was 11,000 lower in the three months to November than in the previous quarter, according to figures from the Office for National Statistics.
Early estimates for December suggested a larger month-on-month decline of 47,000 to 30.3 million in the payroll workforce.
At the same time, average weekly earnings in the three months to November were 5.6 per cent higher than a year earlier, including and excluding bonuses, up from 5.2 per cent in the previous period, the ONS said.
The figures add to mounting evidence that economic growth has weakened and the job market weakened following Rachel Reeves’ October Budget, in which businesses shouldered the burden of £40 billion in tax rises.
Although the full impact of the budget changes will not be seen until later in the year, “warning lights for recruitment, employment and training are already going on”, Jane Gratton, deputy director of public policy at the British Chambers of Commerce, said after the data was released. .
A rise in employers’ national insurance contributions and a rise in the minimum wage have combined to leave some sectors facing a sharp rise in labor costs when the measures come into effect in April.
Surveys suggest that businesses will try to offset higher costs by cutting jobs, squeezing wages or passing them on to consumers through higher prices.
Policymakers at the Bank of England are watching closely to see which of these effects dominates. Analysts said despite stronger wage growth, which policymakers see as inflationary, Tuesday’s figures strengthened the case for cutting interest rates in February.
Figures last week showed UK GDP rose 0.1 percent in November, missing economists’ forecasts, after mild contractions in September and October.
The BoE left rates unchanged at 4.75 percent last month after cutting borrowing costs twice through 2024. Markets largely expect the central bank to cut its base rate by a quarter of a point in February.
Traders expect at least two quarterly rate cuts this year and have priced in a 50 percent chance of a third, according to implied levels in the foreign exchange markets.
Sterling, which was already weaker on Tuesday after a rebound in the dollar, was 0.6 percent lower after the data at $1.2259.
Ashley Webb, UK economist at consultancy Capital Economics, said that while the pick-up in private sector wage growth would “cause the Bank of England some concern”, earlier figures based on HMRC data suggested that “this the recent burst of wage growth is already fading.” .
The figures come as Reeves heads to Davos to make the case for the UK as a destination for international investment, with the government facing mounting criticism for causing a slump in the labor market.
“There is growing evidence that firms have effectively paused hiring after the budget,” said Thomas Pugh, economist at audit firm RSM UK. Although stronger wage growth would make the BoE’s Monetary Policy Committee cautious about easing policy too quickly later in the year, a rate cut in February was “still a safe bet”, it added he.
