Persistently high wage levels in conjunction with other cost rises will mean employers face “a precarious start” to 2025, according to the CIPD.
ONS data out today show that employees’ average earnings grew 5.2 percent in a year for regular and total pay, according to figures for August to October 2024. Growth in total pay for the year was affected by the civil service one-off payments made last year. Further data shows bonus payments for October 2024 continue to remain high, which has contributed to a stronger total pay growth rate.
When pay growth is adjusted for inflation (Consumer Prices Index including owner occupiers’ housing costs (CPIH)), real regular and total pay growth for the year was 2.2 percent in August to October 2024.
Fall in employment
Analysis of HMRC admin data by the Resolution Foundation showed that the employment rate for people aged 16 and over has fallen to 61.1 percent, down from 61.7 percent in early 2023. But it said employers are still hiring at a rate of 600,0000 jobs per month.
This is slightly below pre-pandemic levels of 650,000 jobs per month, but it said there are no signs of an uptick in people leaving the jobs market. However, this rate of recruitment is not enough to keep up with a growing workforce, it said.
The foundation emphasised that “the poor quality of the headline data in today’s release” means that “ONS is under-estimating the real level of employment by at least half a million workers”.
‘Grapple for talent’
James Cockett, CIPD senior labour market economist, said: “Today’s ONS figures show high wage levels are persisting and wage growth has risen for the first time in a year. This is evident across the economy as firms continue to grapple for talent. There was no drastic change in employment intentions in the immediate aftermath of the budget. Vacancies have continued their stable downward trajectory and are now in touching distance of pre-pandemic levels. As we head into 2025, we expect the fall in vacancies to continue with wage growth remaining high in the first few months of the year.”
Legislative uncertainty
He said that employers face “tough waters ahead” with rising employment costs as a result of the budget, compounded with a raft of changes in the Employment Rights Bill.
“The uncertainty around the detail on the bill means it will be a precarious start to 2025 for many employers. The levers they can pull are limited due to ongoing cost pressures. We can expect rising prices and job losses, as firms plan for the next financial year. We urge the government not to lose sight of smaller businesses in particular, who are likely to be disproportionately affected by the cumulative impact of these changes, and require more support, advice and guidance in implementing many of the proposals.”
Cockett said that looking ahead, there is a marker in the sand for pay for 2025 with government departments recommending a 2.8 percent pay rise for millions of public sector workers.
“Many employers across the economy will anticipate cost pressures in the coming months, following the changes to national insurance due to come into effect from April. One consequence is likely to be lower pay growth, later in the year.”
He added: “Uncertainty continues to plague the labour market data, which acts as bedrock of evidence-based policy. Revisions included in today’s release estimate that employment is over 400k higher than previously thought. The levels of unemployment, employment and inactivity are however broadly holding steady as we remain in a tight labour market.”
‘Signs of resilience’
Hannah Slaughter, senior economist at the Resolution Foundation, said: “Britain’s jobs market is continuing to cool amidst a wider economic slowdown. The number of people in work is starting to fall, and business confidence is weak.
“But there are also signs of resilience. Firms are still hiring at a respectable rate and pay packets are still growing. The big living standards question for 2025 will be whether hiring and wage growth can continue to boost household incomes, or if they’ll tail off with the rest of the economy.”
Julia Turney, partner and head of platform and benefits at Barnett Waddingham, said: “Economically, a lot has changed since unemployment was last announced, but the latest figures are a sobering reminder that we still have a long way to go.
“Businesses across the country are still largely coming to terms with costly new changes announced in the Autumn budget – including the rise in national minimum wage and higher employer NICs – which have led many to consider hiring freezes, or potential job cuts; largely putting employers on the backfoot.
“And while there are some potential ‘irons in the fire’ with the government’s recent ‘Get Britain Working Again’ whitepaper and £24 million investment to tackle ill health and inactivity, ultimately the proof will be in the action that is taken to achieve this, and not just statements and loose promises.”
