The weakened job market is a sign of things to come – and it isn’t pretty

Although pay growth has jumped for the first time in over a year, the state of employment is looking particularly bleak right now – and this will likely only get worse, warns James Moore

Recruiter Reed threw the cat amongst the pigeons when it warned of a sharp fall in the number of jobs being advertised – and suggested that a recession may be just around the corner. Unfortunately, the official figures seem to back its predictions.

Between September and November 2024, the Office of National Statistics (ONS) recorded 818,000 job vacancies – a fall of 31,000 on the previous three months. This is the 29th consecutive fall.

Each time these figures are published, the ONS tells us that the number of openings is still above pre-Covid levels. This remains the case, but when the difference between today’s figures and the pre-pandemic ones is 22,000, it’s hardly a huge increase. It is also highly unlikely it will be able to roll out the same line next year, judging by how things are going.

The ONS uses a rolling three-month period for its labour force data, and Rachel Reeves’ controversial Budget occurred towards the end of the latest one on 30 October. So the impact of her decision to tax jobs by increasing employers’ national insurance contributions (NICs) hasn’t really filtered through.

What we do know, however, is that the list of employers warning of job cuts grows by the day. Small wonder that people are starting to get (very) twitchy about the economy...

Given all this, the rise in wage settlements looks slightly odd. Annual growth in employees’ average earnings for both regular (excluding bonuses) and total earnings (including bonuses) ticked up to 5.2 per cent with the private sector, at 5.4 per cent, outpacing the public sector. This is the first time in over a year that pay growth has increased.

It could be down to the acknowledged problems with the ONS survey data – something that has drawn the ire of the Bank of England and rightly so. The rate setters on its Monetary Policy Committee (MPC) are more likely to make bad calls if the data they rely on is suspect – and we will all suffer the consequences. However, we also know that there are shortages in a number of sectors which could be at least partly responsible.

Even if it’s a dodgy stat, the Bank will still take note. Wage growth is running comfortably ahead of inflation and there is a direct line between it and service price inflation. That has remained stubbornly high – even as the price of goods has eased. It is one of the MPC’s key concerns.

There are those who feel that the surprise slowdown in the economy in October, which contracted for the second month in a row, should open the door to a rate cut on Thursday. The European Central Bank moved downwards at its latest meeting. Switzerland did the same – and by 0.5 per cent. But we can probably rule out the Bank of England joining the pack in the absence of a downward move in the rate of inflation, released a day before the verdict is delivered.

High rates – by recent standards – are throttling the economy, but price pressures are sufficient (and the MPC is sufficiently worried by what it is seeing) to prevent it from helping by cutting rates. There should be cuts next year. But the Bank will continue to act with caution, sticking to moves of a quarter point and cutting slowly. The economy will just have to take one for the team.

This only adds to the growing list of problems faced by Britain’s recently elected government. It is gearing up for a (another) big push to get people into work. Those on long-term sick leave, people with disabilities and older workers are a particular focus. But jobs are fast disappearing.

The ONS said the rate of unemployment increased to 4.3 per cent. It was at 4 per cent between March and May, and it is going to rise further. I’m not going to qualify that with a “is highly likely to” – I make that prediction with complete confidence.

What about the “R-word” – recession? Most forecasts (don’t laugh) have growth rising (a bit) next year, and given you have to have two consecutive three-month quarters in negative territory to qualify, we aren’t there yet. But the dreaded word is increasingly being heard. And the worries people have are well founded.

Sorry to be such a Gloomy Gus – a Grinch, even – with the festive season fast approaching. But the numbers are the numbers. And they’re not looking good.

The demands for a rethink from Rachel Reeves on the decision to hike those job destroying NICs are only going to grow louder as the economy worsens.

Politically, it would represent a major U-turn. Her opponents would scent blood. So it is all but impossible for her to heed the calls even if, for the sake of the economy, she probably should.