UK pay growth at four-year low as employers brace for tax hit
The jobs market is unlikely to get help from the economic statement that Reeves is due to announce on Mar 26.
[UNITED KINGDOM] Wages for new hires in the UK rose at the slowest pace in four years in February as businesses scrambled to cut expenses ahead of a looming hike in employment costs, according to a survey closely watched by the Bank of England (BOE).
Starting pay growth deteriorated to levels last seen during the Covid-19 pandemic, the report by the Recruitment & Employment Confederation (REC) and KPMG showed. Recruiters also reported a decline in job postings and hiring activity.
The findings are further evidence that the labour market is cooling as firms brace for Chancellor of the Exchequer Rachel Reeves’ £26 billion (S$44.7 billion) increase in payroll taxes, along with another big rise in the minimum wage. Both are set to come into force in April.
“Things are still slow as companies hold their breath in the face of significant cost rises from April with changes to National Insurance and the National Living Wage,” said Neil Carberry, REC chief executive.
With the reliability of official labour market data in doubt, the REC survey is one of several being monitored by the BOE for signs of underlying cost pressures that could keep inflation elevated. Pay growth has remained stubbornly high despite a weakening economy, leading officials to take a cautious approach to cutting interest rates.
The jobs market is unlikely to get help from the economic statement that Reeves is due to announce on Mar 26. While the chancellor has signalled she will not be increasing taxes again, she will have to find ways to put the public finances back on track amid a worsening outlook and a spike in government borrowing costs.
“Several headwinds to growth remain, and we should expect a Spring Statement that is fiscally constrained due to growing spending pressures and global uncertainty,” said Jon Holt, group chief executive and UK senior partner at KPMG
Expectations of cheaper borrowing costs are easing some of the pressures on businesses. Recruiters said that’s reflected in hiring falling at the slowest pace since before Reeves announced her tax-raising budget at the end of October. BLOOMBERG
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