Unemployment fears are getting in the way of a UK consumer boom
Unemployment fears are a risk to the UK economy even if job losses turn out to be relatively modest
BRITISH workers are increasingly worried about losing their jobs, and it’s preventing the economy from benefiting from a potential uplift in consumer spending.
Unemployment expectations rose to a two-year high in January, according to a recent Bank of America report. Separate figures from the Recruitment and Employment Confederation published on Monday (Feb 10) showed companies are paring back job postings at the steepest pace since the midst of the pandemic in 2020, and increasingly turning to redundancies.
The miserable outlook was reflected in the Bank of England’s (BOE) latest monetary policy report last week, as officials warned of lower growth and higher unemployment while cutting interest rates to 4.5 per cent.
“Even though people still see strong wage growth in the UK, they might not spend more because they are worried about losing their jobs,” said Marion Amiot, senior European economist at S&P Global Ratings.
“The consumer income recovery has mainly been driven by wage increases in the UK, but employment has stagnated, with redundancies even likely to have increased at the end of 2024.”
Unemployment fears are a risk to the UK economy even if job losses turn out to be relatively modest. The Labour government has promised to increase growth but will struggle to do so in the short-term without a rebound in consumer spending. Britain’s savings ratio, however, has stayed high by historical standards.
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Critics say Chancellor of the Exchequer Rachel Reeves worsened the situation when she increased payroll taxes by £26 billion (S$43.7 billion) in her Budget last October, prompting several big companies to reduce headcount. Supermarket J Sainsbury announced it will cut 3,000 roles in response to the employment tax hikes. While that’s just a fraction of Sainsbury’s total payroll numbers, the announcement from the UK’s second-largest grocer was seen as a harbinger of things to come.
Almost half of British adults were concerned about their job in January, according to Office for National Statistics data, a 54 per cent increase from levels seen at the same time last year when the UK was emerging from a recession.
UK consumers have been reluctant to spend their real wage gains, preferring to set more money aside after the pandemic. Sentiment was affected by Labour’s warnings about the state of the economy after the party came to power last summer, while trade tensions since Donald Trump’s election in the US may have added to the impression of a volatile outlook. Shoppers are also facing renewed cost-of-living pressures as energy and food inflation make a comeback.
Over half of UK adults said last month that they are reducing discretionary spending to cope with higher costs for essentials, official figures showed. Despite one of the best years on record for real-terms pay, GfK’s measure of consumer confidence slipped to the lowest since before Labour returned to power, with households still refraining from buying big-ticket items.
Reeves recently announced a wide range of planning and regulatory reforms, as well as a green-lighting of a controversial third runway at Heathrow airport, in an attempt to refocus the narrative on growth after a gloomy first six months in office. However, economists warn that most measures announced might take years before they have any meaningful effect on GDP. The BOE last week slashed its growth forecast to just 0.75 per cent for this year.
“Where would short-term growth come from? When real wages are nudging up, the British consumer is the logical answer,” said Barret Kupelian, chief economist at PwC UK. “But at the moment consumers remain skittish and it is showing up in their spending and saving patterns.”
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