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UK employers cut staff numbers after the Labour government’s tax-raising Budget even as wage growth accelerated, official data showed on Tuesday.
Payrolled employment fell by 0.1 per cent 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 suggest a bigger month-on-month drop of 47,000 to 30.3mn in the payrolled workforce.
At the same time, average weekly earnings in the three months to November were 5.6 per cent higher than a year earlier, both 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 faltered and the jobs market weakened following Rachel Reeves’ October Budget, in which businesses bore the brunt of £40bn in tax increases.
Although the full impact of the Budget changes would only be seen later in the year, “the warning lights on recruitment, employment and training are already flashing”, said Jane Gratton, deputy director of public policy at the British Chambers of Commerce, after the data was published.
An increase in employers’ national insurance contributions and a rise in the minimum wage have combined to leave some sectors facing a sharp jump in their cost of labour when the measures take effect in April.
Surveys suggest 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 that despite stronger wage growth, which policymakers see as inflationary, Tuesday’s figures reinforced the case to cut interest rates in February.
Figures last week showed UK GDP grew a meagre 0.1 per cent in November, undershooting economists’ forecasts, after mild contractions in September and October.
The BoE left rates unchanged at 4.75 per cent last month after cutting borrowing costs twice in 2024. Markets largely expect that the central bank will cut its benchmark rate by a quarter-point in February.
According to levels implied in swaps markets, traders anticipate at least two quarter-point rate cuts this year and have priced in a 50 per cent chance of a third.
Sterling, which was already weaker on Tuesday after a rebound in the dollar, remained 0.6 per cent lower after the data at $1.2259.
Ashley Webb, UK economist at the consultancy Capital Economics, said that while rising private sector pay growth would “cause the Bank of England some unease”, more timely figures based on HMRC records suggested that “this latest 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 increasing criticism for triggering a downturn in the jobs market.
“There is growing evidence that firms have effectively pressed pause on hiring post-Budget,” said Thomas Pugh, economist at the audit firm RSM UK. Although stronger pay growth would make the BoE’s Monetary Policy Committee cautious about loosening policy too rapidly over the course of the year, a rate cut in February was “still a sure bet”, he added.
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