by Xinhua writer Zhang Yadong

LONDON, Feb. 22 (Xinhua) -- Better-than-expected economic growth in the fourth quarter (Q4) of 2024 has not provided lasting relief as higher labor costs may lead to higher unemployment in the UK.

This loosening of the labor market is reflected in two aspects. First, the unemployment rate is rising. Latest data shows that in Q4, the unemployment rate for people aged 16 and over was 4.4 percent, lower than market expectations but still higher than both the same period last year and the previous quarter. Second, employer hiring intentions are weak, with vacancies continuing to decline. From November 2024 to January 2025, the number of job vacancies dropped by 9,000, marking 31 consecutive quarters of decline.

While the labor market continues to tumble, structural imbalances have not been significantly alleviated. This is reflected in wage growth. In Q4 last year, annual growth in employees' average earnings for regular earnings (excluding bonuses) was 5.9 percent and total earnings (including bonuses) was 6.0 percent.

Jane Gratton, deputy director of public policy at the British Chambers of Commerce, stated, "The rise in UK employee earnings indicates that the shortage of skilled workers has not significantly changed. Competition for skilled labor is driving up wage growth."

In response to the labor market data released on Tuesday, Seemanti Ghosh, chief analyst at the Institute for Employment Studies, said that between November 2024 and January 2025, the sector that has seen the highest fall is service-based sectors (24,000), followed by wholesale and retail (8,000).

The situation may deteriorate further in the coming months. Britain's Autumn 2024 Budget, set to be implemented starting April 2025, increases employer national insurance contributions and raises the minimum wage. These measures are expected to impact employment in the retail sector. To mitigate the effects of this fiscal policy, many supermarkets have already begun laying off workers since the beginning of the year.

Recently, Sainsbury's, Britain's second-largest supermarket chain, announced layoffs. Under the plan, Sainsbury's expects to cut over 3,000 jobs, including a 20 percent reduction in senior management positions. Additionally, Tesco and Morrisons have also announced job cuts, with Tesco planning to lay off 400 employees and Morrisons planning to cut 200 jobs from its retail people team.

Helen Dickinson, CEO of the British Retail Consortium, said that the new budget measures will impose an additional 7 billion pounds (8.89 billion U.S. dollars) in costs on retailers in 2025.

As the largest private-sector employer, British retail businesses now face difficult decisions regarding future investment, employment and pricing. The increase in employer national insurance contributions is disproportionately impacting retailers and their supply chains.

"Companies are facing an exceptionally challenging cost environment. This means we must make tough choices about where we can invest and where we need to take a different approach to make our business more efficient and effective," said Sainsbury's CEO Simon Roberts.

Analyses by market performance and research institutions are largely aligned. Research from the Institute for Employment Studies indicates that following the announcement of the Autumn Budget, labor-intensive sectors such as wholesale, retail, construction, transport and storage, hospitality and other service-based sectors have reduced both headcounts and vacancies either in anticipation or immediately after the change was effective.

These sectors are most at risk since they have higher entry-level jobs whereas businesses in sectors that employ a higher proportion of skilled workers adjusted headcounts with a lag of a quarter or two. Therefore, any effect on these sectors (if any) can be expected to be seen in the second half of 2025.

Therefore, some research institutions believe that the government must take urgent action to boost employer confidence and ease cost pressures.

Alex Hall-Chen, chief employment policy advisor at the Institute of Directors, said, "Despite a small increase in payrolled employees, the continued decline in job vacancies points to low business confidence in hiring new staff." He emphasized that the government must take "immediate action to address the mounting pressures on businesses and to restore confidence in the labor market."

Jane Gratton of the British Chambers of Commerce said there are clear signs of a further loosening in the labor market with fewer vacancies, adding, "Firms will face even more difficulty in the months ahead with the imminent rise in employment costs, driven by national insurance and national living wage hikes. Many will be reconsidering their recruitment plans as they try to balance the books."

She stressed that "the government must do all it can to minimize costs for business and ensure they have access to a skilled and healthy workforce." Enditem

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