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Lancashire Times
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9:28 AM 21st January 2025
business

Sharp Decline In Employment Should Set Alarm Bells Ringing

The employment rate came in at 74.8%, down slightly on the previous quarter. Unemployment came in at 4.4%, versus 4.3% in the three months to October and market expectations of 4.3% (Trading Economics).Economic Inactivity fell quarter-on-quarter to 21.6%. Annual wage growth came in at 5.6%, versus 5.2% in the three months to October and market expectations of 5.5% (Trading Economics)

Image by kalhh from Pixabay
Image by kalhh from Pixabay
Anna Leach, Chief Economist at the Institute of Directors, said:
“Today’s data shows a sharp decline in employment: the number of payrolled employees fell at the fastest pace since November 2020 in December, leaving the overall level on payroll down on the year. Meanwhile the number of unemployment people per vacancy has continued to rise.

“Our data shows that, despite some recovery in December, employer hiring intentions remain around lows reached in 2020. The significant increases in employer NI, the forthcoming increase in the minimum wage and concerns over the cost of employment rights continue to sap demand for workers. With the economy likely to have flatlined over the second half of 2024, the labour market is softening sharply.

“Indications from the government that they are prepared to soften some elements of the Employment Rights Bill are welcome. The important work of reinforcing quality jobs must not squeeze out employment opportunities. A strong growth narrative followed up by swift progress in implementing growth-friendly policies, such as industrial strategy, planning reform and de-regulation, would also go some way to reigniting business confidence and hiring.”

Full Results

497 responses from across the UK, conducted between 13-30 December 2024. 13% ran large businesses (250+ people), 18% medium (50-249), 21% small (10-49 people), 36% micro (2-9 people) and 11% sole trader and self-employed business entities (0-1 people).

Comparing the next 12 months with the last 12 months, what do you believe the outlook for your organisation will be in terms of:

Much higherSomewhat higherNo changeSomewhat lowerMuch lowerN/ADon't know
Business investment3.4%27.8%33.9%15.5%16.1%2.0%1.2%
Costs19.6%66.5%8.9%3.2%0.8%0.6%0.4%
Exports3.2%13.5%28.4%6.7%4.2%42.1%1.8%
Headcount1.2%24.0%46.8%19.0%6.9%1.4%0.8%
Revenue4.4%42.5%22.8%20.6%7.9%1.0%0.8%
Wages4.4%49.0%34.9%7.9%2.2%1.0%0.6%



Nicholas Hyett, Investment Manager at Wealth Club

Despite some movement round the edges, the November work stats show an economy that is broadly standing still. Unemployment has ticked up a touch and is slightly higher than expected, but that is largely down to people re-entering the workforce from economic inactivity - which is probably a net positive given the UK's struggle with large numbers of economically inactive workers.

However, the trend is not your friend here if you're the Chancellor. Early estimates suggest the number of people in employment shrank by 47,000 between November and December. With the increase in National Insurance contributions, announced in the budget, making workers more expensive from April it's a trend we wouldn't be surprised to see continue for the next few months. That's not to say that the UK faces a massive layoff - but if businesses decide not to replace leavers and don't hire to expand, the unemployment number will grow all the same.

The UK Labour Market figures could make depressing reading from the next five or six months.


The Deputy Director Public Policy at the British Chambers of Commerce said:

“The labour market continues to be challenging for many businesses, with wage growth continuing to rise as firms compete for skilled workers. This is a concern as they face a significant rise in employment costs in April.

“However, there are also signs of further loosening as unemployment ticks up, vacancies continue to fall and economic inactivity dips.

“The full impact of the changes to national insurance and the minimum wage, announced at the Budget, won’t be fully seen until later in the year. However, the warning lights on recruitment, employment and training are already flashing.

“Our latest survey paints a worrying picture of weak workforce growth, persistent hiring difficulties and cuts in workplace training. It also revealed that 55% of firms are planning to put up prices, with labour cost the main driver.

“To grow the economy, we need businesses and the workforce to thrive. Government must ease the cost-pressures on firms so they can invest in people. Working proactively with employers to tackle the long running skills crisis is likely to become even more important in the months to come.”