Post-Covid jobs boom ending as recession looms

The latest figures in the ONS labour market overview suggest the jobs boom is coming to an end with a lengthy recession on the horizon. 

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The unemployment rate decreased over the latest three-month period covering July to September - a feat that appears quite remarkable in the face of boiling inflation and with the sharpest increase in borrowing costs in decades weighing on the economy. But the UK job market is not as rosy as the unemployment rate might suggest.

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“The low unemployment rate is offset by yet another rise in the number of people who are not looking for work due to illness, inertia or early retirement – the so-called economically inactive cohort. This trend has been largely caused by older workers leaving the labour market altogether, but the increase in economic inactivity during the latest three-month period was largely driven by those aged 16 to 24 years and those aged 35 to 49 years, with long-term sickness the main contributor to the rise. It is a worrying stat and reversing the rise is a huge challenge for the government - made harder by the mounting pressures faced by the NHS.

“Job vacancies continue to fall back from their record highs, giving the clearest indication yet that the post-Covid jobs boom could be coming to an end. Employers are starting to get wary about taking on new people as economic pressures chip away at their margins. The UK economy shrank by 0.2% in the three months to September, which represents the start of what is forecasted by the Bank of England to be a lengthy recession. The recent collapse of Made.com and the loss of hundreds of jobs is a timely reminder that roles can disappear in an instant in challenging economic times.

“Despite low unemployment, UK plc is struggling to fill the jobs it needs doing. This continues to feed into wage inflation. Pay packets are still growing faster than before the pandemic as companies seek to attract and retain the best talent. However, when adjusted for inflation, pay packets including bonuses fell by 2.6% on the year and by 2.7% on the year for regular pay (excluding bonuses).

“For many taxpayers, the real terms pay squeeze will make this winter one of the toughest in recent times from a financial standpoint. While inflation is expected to have peaked in October, following the implementation of the new heightened household energy tariff cap, it is set to remaining stubbornly high for quite some time impacting food, travel and car fuel costs (while the average yearly energy bill will remain frozen at £2,500 until April next year).

“Some workers are securing stronger pay rises than others. The gulf between the pay rises being handed to public sector workers, and those in the private sector is at its largest outside the height of the pandemic. Average regular pay growth for the private sector was 6.6% in July to September 2022, and 2.2% for the public sector. The disparity in pay is likely attributed to private sector employers offering stronger bonuses to attract and retain talent. However, amid fears of a looming recession, firms might feel less inclined to raise wages.”