Jobs Market Weakness Suggests Brief Era Of Healthy Pay Growth Could End Soon

18th October 2024

The continued softening of the jobs market - with quarter-on-quarter growth in payrolled employment falling for the first time since January 2021 – suggests that the UK's brief era of healthy real terms pay growth could end soon, the Resolution Foundation said this week.

While ongoing data quality issues mean little can be taken from the headline employment, unemployment and inactivity trends, other data points to a softening of the jobs market. The number of PAYE employee jobs has fallen been flat or falling since May, having grown consistently for the previous three years post-pandemic.

The quarter-on-quarter growth rate in PAYE employee jobs (the three months to September 2024, compared with the three months to June 2024) has turned negative for the first time since January 2021, while the number of vacancies fell again, to 841,000.

This softening is already having an effect on pay, with nominal average regular earnings growth falling to 4.9 per cent in the three months to August, down from 5.1 per cent over the previous three months.

The Foundation notes that that low inflation means that workers are still seeing their pay packets grow in real-terms at 1.9 per cent (down from 2.2 per cent over the previous three months). But with inflation stabilising at around 2 per cent, and the labour market continuing to soften, the current era of healthy pay growth is likely to end soon. The Foundation notes that the latest Bank of England forecasts suggest that real average weekly earnings growth will fall below 1 per cent in the private sector in 2025.

Charlie McCurdy, Economist at the Resolution Foundation, said:

"The jobs market continues to soften, with the number of workers in payrolled employment falling in August. This softening means that wage rises are also starting to weaken.

“Should these labour market trends continue, Britain’s brief era of healthy pay growth could soon end.

“Today’s data should serve as a further warning that future pay growth will need to be driven by rising productivity, rather than a hot jobs market."