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Official data on Tuesday showed that British employers reduced their headcount following the Labor government’s tax-rising budget, even as wage growth accelerated.
The number of employed people fell by 0.1 percent between October and November and was 11,000 lower in the three months to November than in the previous quarter, according to ministry figures Office for National Statistics.
Initial estimates for December suggest a larger month-on-month decline in the number of employees, falling by 47,000 to 30.3 million.
At the same time, average weekly earnings in the three months to November were 5.6 per cent higher than a year earlier, both with and without bonuses, compared with 5.2 per cent in the previous period, the ONS said.
The figures add to mounting evidence that economic growth has stalled and the labor market has weakened following Rachel Reeves’ push. Budget for Octoberwith companies bearing the brunt of £40bn of tax rises.
Although the budget changes would not have their full effect until later in the year, “the warning lights for recruitment, employment and training are already shining,” said Jane Gratton, deputy director of public policy at the British Chambers of Commerce, after data was published.
An increase in employers’ social security contributions and an increase in the minimum wage have combined to leave some sectors facing a sharp increase in their labor costs when the measures come into force in April.
Surveys suggest companies will try to offset higher costs by cutting jobs, driving down wages or passing them on to consumers through higher prices.
Policymakers at the Bank of England are watching closely to see which of these effects predominates. Analysts said that despite stronger wage growth, which policymakers see as inflationary, Tuesday’s numbers strengthened the case for a rate cut in February.
Last week’s numbers showed British GDP grew by a meager 0.1 percent in November, falling short of economists’ forecasts, after slight declines in September and October.
The BoE left interest rates unchanged at 4.75 percent last month after cutting borrowing costs twice in 2024. Markets largely expect the central bank to cut its key interest rate by a quarter point in February.
According to levels implied in swap markets, traders expect at least two quarter-point rate cuts this year and have priced in a 50 percent chance of a third.
Sterling, already weaker on Tuesday following a rebound in the dollar, remained 0.6 percent lower at $1.2259 after the data was released.
Ashley Webb, British economist at consultancy Capital Economics, said that while rising private sector wage growth would “cause some concern for the Bank of England”, more recent figures based on HMRC data suggested that “this recent rise in the Wage growth is already slowing down.” .
The numbers come as Reeves heads out Davos to promote the UK as a destination for international investment, with the government facing increasing criticism for triggering a downturn in the labor market.
“There is growing evidence that companies have effectively hit pause on hiring staff post-Budget,” said Thomas Pugh, an economist at accountancy firm RSM UK. Although stronger wage growth would prompt the BoE’s monetary policy committee to warn against easing policy too quickly later this year, a rate cut in February “is still a safe bet,” he added.
