Before we dive in: join us live on Substack on August 7 at 10am ET, where the Recruitonomics team will unpack the U.S. July jobs report. Link here.
This is a pivotal moment the U.K. economy. Yesterday, Andy Burnham became Britain’s new prime minister, arriving at Downing Street to deliver his first speech in office. In a surprise decision, John Healey was announced as chancellor, an apparent signal that the new government will not throw fiscal orthodoxy completely to the wind. Despite that move, financial markets were rattled a little by some of Burnham’s early announcements on higher government spending, with cutting household costs among his key priorities. Interest rates on long-term government bonds increased initially on Monday following Burnham’s first speech but have stabilized since. Employment figures offer further relief for the new government, with the job market seemingly stabilizing for now after being hit by the energy price shock earlier this year. The unemployment rate remains steady, while payroll employment is contracting marginally. Wage growth is falling to the lowest level since 2020, which will allow the Bank of England (BoE) to keep interest rates on hold.
The job market is stabilizing
Contrary to expectations, the unemployment rate remains unchanged at 4.9% despite the economic fallout from the new energy price shock. As a result, the BoE’s forecast of unemployment rising to 5.3% by the end of the year is probably a tad too pessimistic. While some concerns about the data accuracy of the household survey remain, payroll job figures confirm that the labor market has stabilized.
Job growth throughout May and June now stands at zero, with May’s job gain of about 3,000 being canceled out by a contraction of similar size in the following month. While not spectacular by any means, the figures are better than anticipated, given elevated global uncertainty and rising energy prices. Furthermore, April’s payroll job losses were revised down to about 30,000, bringing the cumulative job loss since late 2024 to about 170,000. As we anticipated, the initial figure of 100,000 job losses for April recorded a couple of months ago was always likely to be revised substantially.
Labor demand remains muted
The total number of vacancies in the U.K. remains relatively steady at 712,000, its lowest level since late 2014, confirming what basically everybody knows: this is one of the toughest markets for jobseekers in decades as hiring remains depressed.
This trend is also borne out by Textkernel's online job-advertisement data, with U.K. job postings in the first half of this year running below levels seen a year earlier. All in all, hiring demand remains very weak, especially in the private sector.
Young people are bearing the brunt
While the aggregate unemployment figure has remained reasonably steady over the last year, youth unemployment continues to rise. No wonder, given that job postings for entry-level and junior roles have plummeted the most. Domestic policies like the minimum wage hikes and the increase in National Insurance contributions have led to a surge in employment costs, especially for young and part-time workers. As a result, payroll jobs for workers aged 24 and younger have fallen by about 150,000 since January 2023. Over the same period, employment among middle-aged workers has grown by about 420,000.
If you think that artificial intelligence is the culprit, you might want to reconsider. Most of the job losses in the U.K. have been concentrated in retail and hospitality, two sectors that have relatively low AI exposure. These industries — supermarkets, high street stores, local independent restaurants and cafes — offer flexible, part-time positions that require little prior experience, which makes them a natural fit for younger jobseekers. Unfortunately, those opportunities have dried up as businesses have struggled with rising labor costs amid stagnant consumer spending.
Wage growth shows further weakening
While falling wage growth together with rising inflation is obviously bad news for workers, it is a relief for the BoE. Although we can surely rule out a rate cut as the Iran conflict drags on, muted wage growth is giving monetary policymakers a reason not to hike. With the labor market as sluggish as it is, fears of a renewed wage-price spiral as seen during the post-pandemic recovery can be safely dismissed. In fact, private-sector wage growth is at its lowest since 2020.
What does this mean for recruiters?
For recruiters, little is changing for now. The job losses since the beginning of the Iran conflict are more benign than what was initially feared. At the same time, hiring remains at a multi-year low. It’s a terrible market for jobseekers, with young people hit hardest. In this environment, recruiters should anticipate that most job postings will attract a large volume of candidates, especially as AI makes it easier to apply to many roles.
The new Burnham government is expected to increase fiscal spending but must walk a tightrope, avoiding upsetting bond markets while working within the fiscal rules. At the very least, optimism seems to run higher than after Starmer was elected. Burnham’s plans for fiscal devolution, together with other significant reforms, might lift consumer and business sentiment — something the U.K. desperately needs. Hopefully, that translates into improving labor market conditions in the second half of the year.
