Job market experiences significant wage increase, accompanied by a decrease in employment numbers

The UK jobs market is experiencing a period of uncertainty, with employment numbers continuing to decline and wage growth remaining elevated. According to the latest figures from the Office for National Statistics (ONS), the number of payrolled employees dropped by 26,000 in June, with a provisional estimate suggesting a further fall of 8,000 jobs last month.

This decline is a revision up from an early estimate showing a decrease of 41,000 payrolled employees in June. The fall in jobs numbers was "concentrated" in the hospitality and retail sectors, which have been hit hard by the ongoing economic challenges.

The Monetary Policy Committee (MPC) may experience unrest due to the lacklustre jobs market, with some members, like Alan Taylor, an external member, initially backing a bigger 50 basis point cut due to the "risk of a recession". Governor Andrew Bailey has also expressed that the future path of interest rates is "more uncertain".

Economists are concerned about pay growth remaining elevated, with wage growth hitting 5% in June due to higher labour costs introduced by Chancellor Rachel Reeves. Including bonuses, wage growth was 4.6% in June, slightly lower than market predictions.

Shadow business secretary Andrew Griffith has expressed concerns about red tape in the Employment Rights Bill breaking down the "deal" of getting a job after achieving high grades. The government's last £20bn tax raid on employers through hiking employers' national insurance has been widely blamed for a decline in jobs numbers.

Industry groups are urging the government not to target businesses if it chooses to raise taxes this autumn. Treasury officials, including Chancellor Rachel Reeves, are likely to be cautious with Parliament's return from the summer recess in September, as there is more speculation over tax rises.

Liz McKeown, director of economic statistics at the ONS, stated that these latest figures point to a continued cooling of the labour market. Suren Thiru, ICAEW’s economics director, stated that the UK jobs market is in a state of "turmoil".

On a positive note, excluding bonuses, wage growth in the three months to June was the same as the month before. However, the UK jobs market is expected to face more pain in the coming months with higher labour costs likely to lift unemployment moderately higher.

Meanwhile, across the continent, the German Federal Government coalition partners CDU/CSU and SPD have proposed tax reforms for autumn, including raising the top income tax rate from 42% to 45% for high earners, while lowering taxes for middle and lower incomes. SPD members like Matthias Miersch openly support further tax increases, especially targeting wealthy individuals, with SPD plans aiming to raise the top tax threshold and potentially introduce wealth taxes above 100 million euros. The Union is more cautious but open to compromises involving tax increases on the wealthy to fund social reforms.

Job market experiences significant wage increase, accompanied by a decrease in employment numbers