This month’s UK labour market statistics paint a mixed picture as 2024 draws to an end. Employment and unemployment are largely unchanged at 74.9% and 4.3% respectively although these figures are unreliable due to the sampling problems with the Labour Force Survey. Regular nominal pay growth rose to 5.2% which exceeded economists’ expectations. However, vacancies decreased by 35,000 on the quarter, continuing its downward trend of the past two and half years. With hiring expected to slow in the future as well, the Government faces an uphill task in reaching its ambitious target of an 80% employment rate, which would be the equivalent of getting approximately two million people back to work.

Better than expected pay growth will be welcome relief for workers

Annual nominal pay growth (excluding bonuses) exceeded forecasts and rose by 5.2%. This growth was driven by a 5.4% increase in the private sector while public sector wages increased by 4.3%. The growth in average earnings has been widespread across industries. Manufacturing saw the strongest annual growth at 6% with construction and the hospitality (wholesaling, retailing, hotels and restaurants) sectors seeing annual growth rates of 5.2% and 5.4% respectively.

This month’s figures continue a 33-month run of above 4% wage growth, which is the strongest period of sustained wage growth for almost quarter of a century. However, this growth is amidst a backdrop of largely stagnant living standards for much of the 2010s. Despite this strong run of recent growth in earnings, average weekly wages are only £23 higher than they were at the onset of the financial crisis of 2008. This underscores the importance of the Government’s mission to boost living standards across the country.

Figure 1: Nominal regular pay growth 2001-2024

Source: Work Foundation calculations of ONS data (17 December 2024) using Dataset A01, table 15 Average Weekly Earnings (nominal) - Regular Pay (Great Britain, seasonally adjusted)

Continued vacancies slowdown highlights scale of challenge facing Government

The Government has also set out to raise the employment rate from 75% to 80% which is equivalent to adding two million people to the workforce. It launched its “Get Britain Working” White Paper last month that outlined reforms to employment support to get back people back to work. However, today’s vacancies data highlights how challenging it will be for the Government to achieve its employment target.

The number of vacancies has fallen by 31,000 on the quarter and now stand at 818,000, just 22,000 below pre-pandemic levels. Vacancies have been trending downwards for the last two and half years with the number of unemployed people per vacancy up to 1.8, which signifies increasing slack in the labour market. This downward trend in vacancies is likely to continue as various indicators of business activity and sentiment point to falling business confidence. According to the UK purchasing managers’ employment index, business confidence has fallen sharply over the past few months while expectations of economic growth fell to a two-year low. Furthermore, new data from the Insolvency Service showed that there was a 13% increase in registered company insolvencies in November reinforcing the cost pressures many firms seem to be facing.

Labour market priorities for Government in 2025

The Government’s aim of getting Britain back to work will face numerous headwinds next year with stagnant growth, declining business confidence and falling vacancies as business absorb the effects of the rise in employer national insurance contributions due to come into effect next April. Increasing the employment rate would involve substantial reductions in the number people of people out of work due to ill-health which currently stands at a record 2.8 million and has been over 2.5 million since April-June 2022.

In the light of a weakening labour market, the Government should review and reform the punitive elements of the benefits system and ensure sanctions are not issued for job seekers who turn down work that would worsen their health condition or are insecure by nature. Sanctions should only be applied where there is no evidence of work search activity. This will ensure that claimants with health conditions are adequately supported into secure and sustainable employment.

The Government must also take proactive action to prevent workers with health conditions dropping out of work in the first place. Recent Work Foundation research has found that almost half of the employees who leave work due to ill-health do so within the first year of falling ill. Therefore, the Government must support small employers to expand occupational health provision and ensure the Employment Rights Bill enshrines secure and flexible work from day one.

Please note: Due to sampling issues with the Labour Force Survey, headline figures of employment, unemployment and inactivity rates must be treated with caution.

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