Rachel Reeve’s £25 billion National Insurance rise is beginning to bite. According to the latest data on our labour market, released this morning by the Office for National Statistics, payrolled employment fell by 47,000 last month — the sharpest fall since the pandemic. Meanwhile, the number of vacancies in the economy fell for the 30th consecutive period, unemployment rose to 4.4 per cent and there have been 21,000 more redundancies than in the same period a year ago.
In a boost to those British workers still in jobs, pay is on the up. The ONS’s figures show that once inflation is removed the average worker experienced a 2.4 per cent pay rise in the three months to November last year. These pay increases were driven by the private sector which saw 6 per cent rises in cash terms compared with just over 4 per cent in the public sector.
While workers will be happy with this news it will worry Bank of England rate setters who consider continued pay rises inflationary. As it stands, markets are betting on no more than three cuts this year, with the base cost of borrowing not falling further than 4 per cent in the long term. Since the first Reeves budget homeowners are already £500 a year worse off because of increased rates, so anything that further cautions the rate setters in Threadneedle Street comes as unwelcome news.
Perversely, the Bank will be more pleased with the rest of the ONS’s release which point to a seriously slowing labour market. Both methods of counting how many people are working (tax data and an ONS survey) found there to be fewer workers in the economy than in the previous quarter. Unemployment rose over the same period, and on last year, and now sits at 4.4 per cent. This news will likely prompt the Bank to pay less attention to wage data and proceed with an interest rates cut. Indeed, early moves in the markets in response to the data suggest a 90 per cent chance of a 25 basis point cut at the Bank’s February meeting — though cuts slow after that point.
The number of job vacancies in Britain’s economy fell too for the 30th consecutive period and are down 24,000 to 812,000 – still slightly above pre-lockdown levels. That means vacancies have been falling for two and a half years now and in the last quarter they fell in 10 of the 18 sectors the ONS divvies the economy up into. This obviously makes it harder for the rising number of unemployed people to find work with nearly 2 unemployed workers per vacancy now compared with 1.7 last summer.
Questions continue to be asked though about how much we can trust this crucial economic data from the ONS. Since lockdown, where the ONS switched away from door knocking to more virtual-based survey methods, there have been problems with the labour force survey — due to falling response rates — which the government and Bank rely on to make the decisions that govern our economy and lives. Every month the release is now filled with warnings about the accuracy of the data and what the ONS call ‘coherence challenges’. We now learn the cost of fixing the crucial survey — which statisticians point out is the ‘sole source of data for unemployment, economic inactivity and self-employment, and provides a range of breakdowns that are only possible from LFS data’ — has doubled over the past year to over £40 million. An expensive lockdown mistake, but one that must be urgently fixed.
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