Britain's Labour Market Shows Signs of Cooling

LONDON (Reuters) – Britain's labour market showed further signs of cooling last month, according to a survey that indicated the weakest wage growth since early 2021. Tax increases in last week's budget might further impact hiring.

The Recruitment and Employment Confederation/KPMG reported that its gauge of starting pay for permanent roles slowed to 52.5 in October from 52.8 in September, marking the weakest level since February 2021 during the coronavirus pandemic.

REC's permanent placements index fell to 44.1 from 44.9 in September, with the rate of contraction being the steepest since March. The survey noted firms are delaying hiring amidst uncertainty before the new Labour government's budget.

Neil Carberry, chief executive of REC, stated, "There is little in the pay data in today’s report that suggests the Bank of England should step away from further cuts to interest rates, which will also boost business confidence."

The Bank of England (BoE) is closely monitoring pay growth as it assesses inflationary pressures in the economy. Recently, it reduced borrowing costs by a quarter-point to 4.75% from 5% and indicated that further cuts would likely be gradual.

REC also reported a decline in vacancies for the 12th consecutive month, indicating reduced demand for staff. The number of available candidates for jobs rose for the 20th month in a row, with businesses noting the sharpest increase in temporary staff availability in nearly four years.

Jon Holt, group chief executive at KPMG, mentioned that measures announced by Finance Minister Rachel Reeves in last week's budget could cause firms to further slow their hiring.

On October 30, Reeves unveiled £40 billion ($51.94 billion) in tax rises, primarily through higher social security contributions from businesses and an increase in the minimum wage for most adults, changes likely to negatively affect hiring and wage growth.

"With many of the tax rises announced in last week’s budget impacting businesses, the expectation from some chief executives is that this could further dampen hiring as companies grapple with absorbing any extra costs," Holt said.

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