UK Employment Plummets as 276,000 Jobs Lost Since Reeves Budget

Commuters climb the stairs to exit Liverpool Street railway station in London, UK. Photo by Chris Ratcliffe /Bloomberg

Article content

(Bloomberg) — UK employment plunged by the most in five years and wage growth slowed more than forecast, as the labor market deteriorated after Chancellor of the Exchequer Rachel Reeves ramped up the cost of hiring.

Article content

Tax data showed the number of employees on payroll tumbled 109,000 in May, the biggest decline since May 2020, the Office for National Statistics said Tuesday. It was much worse than the 20,000 fall predicted by economists.

Article content

Article content

Article content

It took the number of jobs lost since Reeves’ first budget in October to 276,000 and suggested the labor market has worsened significantly since a £26 billion tax hike on businesses took effect in April. The payrolls number is often revised and the ONS said May should be treated with extra caution as the estimate is based on partial figures.

Article content

Article content

The figures suggest firms are seeking cost savings after Labour increased payroll taxes for businesses and hiked the minimum wage. That will likely ease concerns at the BOE that inflation will continue to be fueled by higher wage growth, as officials try to contain a fresh pick-up in price pressures. 

Article content

The pound held losses after the data showed wages grew slightly less than expected in the period, down 0.2% on the day to around $1.35. Traders increased bets on a rate cut this year.

Article content

“There continues to be weakening in the labour market, with the number of people on payroll falling notably,” said ONS director of economic statistics Liz McKeown. “Feedback from our vacancies survey suggests some firms may be holding back from recruiting new workers or replacing people when they move on.”

Article content

Article content

The ONS also said pay growth excluding bonuses eased to 5.2%, the slowest pace in seven months. Economists had expected 5.3% on average. Private-sector wage growth — the measure watched most closely by the Bank of England — cooled to slowed to 5.1% from 5.5%. Vacancies fell in the three months through May.

Article content

Unemployment rose to 4.6%, the highest since the summer of 2021. However, policymakers do not trust the estimates after a plunge in responses to the survey underpinning the figure.

Article content

Sticky pay and price data have kept the BOE wary over cutting interest rates too quickly, adding to doubts over whether it will stick to a once-a-quarter pace to its reductions.

Article content

While wage growth is easing, it remains well above the 3% or so that the BOE deems compatible with keeping inflation at the 2% target.

Article content

Markets have all but ruled out another move at their meeting next week and put the odds of a cut to borrowing costs in August at around 60%, with officials expected to stick to their “gradual and careful” approach to cutting rates. Some including Governor Andrew Bailey said they considered skipping another cut at their meeting in May but were persuaded to back an easing by Donald Trump’s trade war.

Article content

“Today’s labour market data provides the Bank of England with tentative evidence that the rise in labour costs is unlikely to lead to a rebound in wage growth,” said Yael Selfin, chief economist at KPMG UK.

Article content

Energy bills and regulated prices boosted inflation in April to the highest level in over a year, though policymakers believe underlying pressures are gradually cooling.

Article content

—With assistance from Joel Rinneby, Mark Evans and Harumi Ichikura.

Article content