Millions of workers are facing a new pay squeeze as the UK jobs market takes a turn for the worse, according to official data that reveals rising unemployment and growing fears of further deterioration due to the economic fallout from the Middle East conflict.
Wage Growth Slows
Data from the Office for National Statistics (ONS) shows that average wage growth slowed to 3.4% year-on-year between January and March. Private sector pay growth fell to 3%, while public sector pay stood at 4.8%. With inflation rising to 3.3% and expected to increase further because of the economic impact of the Iran war, experts warn that many workers will begin to suffer a real-terms pay cut.
Weakening Labour Market
The ONS data also reveals a weakening jobs market, making it harder for employees to demand inflation-matching pay rises. The unemployment rate edged up to 5%, while the number of vacancies fell to 705,000, the lowest level since the Covid crisis. Excluding the pandemic, there are fewer job openings than at any time in more than a decade.
The number of people in payrolled jobs fell by 104,000 year-on-year in March, with early estimates suggesting a drop of 210,000 in April. The claimant count for people on out-of-work benefits increased month-on-month but decreased year-on-year to an estimated 1.699 million.
Expert Analysis
Jack Kennedy, senior economist at jobs website Indeed, said: "The latest figures point to a labour market feeling the strain. Vacancies are falling, payrolled employment is declining, and the jobless rate is rising – a combination that signals the squeeze on businesses from rising costs and uncertainty is now feeding through into tangible job market deterioration."
Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said: "These figures signal growing distress within the UK’s labour market as soaring labour costs and the fall-out from the Iran war drive more businesses to reduce recruitment and limit pay awards."
Yael Selfin, chief economist at KPMG, said: "Workers are likely to face a period of declining real pay, as headline inflation is set to outpace earnings, driven by higher energy and food prices. Unlike the 2022 energy shock, the weaker labour market is expected to limit workers’ ability to secure higher pay settlements to offset rising costs."
Interest Rates
Economists believe the slowdown in pay growth means the Bank of England is likely to keep interest rates on hold again next month.
