- UK businesses have reported layoffs since July last year.
- Unemployment has risen to 5.2 per cent.
- Youth joblessness has climbed to 16.1 per cent.
The UK labour market is showing fresh signs of strain, with businesses reporting the longest stretch of job cuts since the pandemic, according to new data from the Bank of England.
Figures from the Bank suggest companies have reduced staff numbers in every three-month period since July last year. That marks the longest continuous run of layoffs since the later stages of the Covid pandemic in 2021.
The trend is adding to concerns about the health of the UK labour market, particularly as unemployment has been edging higher. The official jobless rate has reached 5.2 per cent in the latest three-month period, compared with 4.4 per cent a year earlier.
Economists and business groups have been watching the labour market closely, as it often acts as an early signal of wider economic stress.
The wave of layoffs broadly lines up with a series of policy changes that increased costs for employers. These include a £25 billion rise in employer national insurance contributions introduced in April, along with a 6.7 per cent increase in the minimum wage. The minimum wage is also scheduled to rise again this spring.
Some analysts believe these cost pressures may have contributed to businesses becoming more cautious about hiring or maintaining existing staff levels.
Young workers feel the pressure
Younger workers appear to be feeling the impact most sharply.
The unemployment rate for people aged between 16 and 24 has climbed to 16.1 per cent, the highest level recorded in 11 years. The government has introduced a job subsidy programme aimed at supporting youth employment in response to the increase.
Economists have suggested that the condition of the labour market could play a major role in shaping the UK economy over the coming months. In particular, it may influence the Bank of England’s decisions on interest rates.
Many analysts believe the central bank will only consider cutting rates if wage growth slows and unemployment continues to rise.
Financial markets had earlier expected a quarter-point rate cut to 3.5 per cent when the Bank of England next meets on March 19. However, expectations have shifted sharply following rising geopolitical tensions.
Global tensions cloud the outlook
The ongoing conflict involving the US, Israel and Iran has complicated the economic outlook.
The tensions have pushed oil and gas prices higher, which could drive up inflation by increasing energy costs and production expenses. If that happens, the Bank of England may feel pressure to keep interest rates higher for longer in order to contain price growth.
Before the escalation in the Middle East, investors had viewed a rate cut as highly likely. Market expectations have since dropped, with traders now placing the probability of a cut at roughly 30 per cent.
Meanwhile, Bank of England data shows businesses reported a 0.7 per cent average reduction in workforce size over the past year in February alone, compared with a 0.3 per cent decline reported a month earlier.
Despite the layoffs, companies appear cautiously optimistic about the future. Businesses surveyed by the Bank said they expect their workforce to grow by about 0.3 per cent over the coming year, slightly higher than the 0.2 per cent forecast in January.
Companies also expect to raise prices by around 3.3 per cent over the next year, down slightly from 3.4 per cent previously.
Rob Wood, chief UK economist at Pantheon Macroeconomics, noted that this marks the first time expected price increases have stayed below 3.5 per cent for two consecutive months since August 2021, as quoted in a news report.
Bank of England economists had earlier predicted that inflation could fall to around 2 per cent in April, partly due to declining energy bills. However, the recent jump in gas prices linked to the Middle East conflict may push inflation higher again later in the year.
