More Job Cuts Loom After UK Firms Run Down Covid Coffers

The UK economy, which outperformed low expectations in 2024, has slowed in recent months, with concerns over the labour market's outlook. Headwinds to hiring have mounted as a result of the Budget's policy changes, though a handful of sectors could see a boost from government spending plans. Job postings have seen a sustained and broad-based slowdown this year, with almost all categories having seen falls. Waning usage of signing bonuses and an increased prevalence of zero-hours contracts are signs that employers may be gaining more bargaining power. Posted wage growth has eased but remains strong, particularly for lower-paid and in-person roles, but is likely to gradually wane heading into next year. Remote/hybrid flexibility in postings has dipped from peaks but persists at a much higher level than pre-pandemic. GenAI tools are not yet widely adopted, but are gaining traction in a handful of sectors.

The UK economy performed a little better than expected this year, but sails toward 2025 in choppy waters. While the first half of this year saw a solid recovery from the shallow technical recession seen in late-2023, the economy's motors have been stalling in recent months and there are particular concerns about the labour market's prospects. On the positive side, GDP projections for this year and next have been upgraded by many forecasters, with growth set to quicken in 2025. The International Monetary Fund raised its 2024 UK growth forecast from 0.4% to 1.1%, and said it expects 1.5% growth in 2025, placing the UK near the middle of the pack among advanced economies. The Office for Budget Responsibility and Bank of England are both slightly more optimistic, each forecasting roughly 2% GDP growth next year.

Less positively, this doesn’t look likely to translate into a hiring upswing, with government policy changes presenting multiple headwinds. The combination of a hike in employer National Insurance contributions and lowering of their threshold, higher minimum wages, increased business rates and a new workers' rights package have been widely met with warnings of a hit to employment and wages. Sectors that typically employ large numbers of lower-paid workers, including retail and hospitality, are likely to be most impacted by these changes, though the effects will be felt broadly across the labour market.

At the higher-paid end, knowledge-work occupations have experienced a marked slowdown in hiring over the past couple of years amid a so-called 'white collar recession.' With business confidence remaining subdued amid still-restrictive monetary policy and ongoing global uncertainty, caution is likely to remain the watchword for many employers. The overall stance of the Budget was a fiscal expansion, with higher public spending financed by increased borrowing and tax rises. That’s set to boost growth in the short-term, though not expected to deliver a sustained upshift beyond the first couple of years. Higher government spending implies that monetary policy will have to be kept tighter than it otherwise might be to keep inflation down.

The Bank of England has cut interest rates twice in recent months but is not yet ready to declare victory over inflation. Alongside the Budget impact, the Bank remains mindful of stubborn services inflation and wage growth, signalling that further rate reductions are likely to be gradual. Waters muddied by faulty labour market data A major challenge for policymakers is that it’s very difficult to get a clean read on the state of the UK labour market due to data quality issues. The response rate to the Office for National Statistics’ (ONS) flagship Labour Force Survey (LFS) remains so low that several key statistical measures, including employment, unemployment and inactivity, continue to be unreliable. But taken at face value, the figures indicate that the UK employment rate has not yet recovered to pre-pandemic levels, unlike other leading advanced economies. That’s been accompanied by a modest rise in unemployment and a large increase in the number of inactive workers, driven in particular by rising long-term sickness.

However, alternative estimates of employment, based on administrative data and updated population figures not accounted for in the ONS statistics, suggest much stronger jobs growth since the pandemic. If that’s true, it would imply some combination of lower unemployment and/or lower inactivity (researchers suggest inactivity could be substantially lower than suggested by the ONS figures). Regardless of these uncertainties, the Labour government has made boosting labour force participation a priority to help unlock economic growth. Recent revisions have reflected the widespread challenges of estimation during the pandemic period and recovery. While previous analysis shows that if you look at revisions outside of the pandemic period, they are on average both small and unbiased, this has not always been the case for the pandemic period. We will explore this in more detail when we update our usual analysis of revisions in the autumn.

On 30 September, we will be extending these revisions to include the latest periods when we will bring our 2023 and 2024 GDP estimates into line with today’s updated and reweighted data, which will also include additional data. We look forward to sharing these new statistics when our fully revised GDP dataset – as part of the 2024 Blue Book dataset – is published in September this year. Craig McLaren, Head of National Accounts

In conclusion, the recent wave of job cuts and layoffs in the UK, particularly in the journalism industry, reflects broader trends in the economy, such as the slowdown in hiring and the impact of government policy changes on employment. These trends highlight the need for employers to adapt to changing market conditions and for policymakers to consider the potential impact of their decisions on employment and the broader economy.