Cooling labour market suggests further job losses on the way, as youth unemployment approaches 10 per cent

A cooling labour market, with vacancies falling and youth unemployment rising to 9.8 per cent, suggest that further job losses could soon be on the way, the Resolution Foundation said today (Tuesday) in response to the latest ONS labour market statistics.

The UK labour market was tight in late 2022, prompting nominal private sector growth to grow at its fastest rate outside of the pandemic (7.2 per cent) since records began in 2001. The huge gap with nominal public sector pay growth (growing by just 3.3 per cent) helps to explain why industrial unrest is mounting in the public sector.

Double-digit inflation meant that real wages fell by 1.9 and 5.5 per cent respectively in the private and public sector, with pay packets set to continue shrinking until the second half of 2023.

However, there are clear signs that the labour market is at a turning point and starting to cool, says the Foundation.

The number of job vacancies has fallen for the seventh consecutive month to 1.16 million, while overall unemployment (up to 3.7 per cent) and redundancies (rising for the past 6 months, now to 97,000) both ticked up in the three months to November.

The rise in unemployment has been driven entirely by 18-24 year olds, with youth unemployment rising from 7.5 to 9.8 per cent.

The Foundation notes too that the UK workforce is still significantly smaller than it was pre-pandemic – down by around 412,000. Encouraging participation among these ‘lost workers’ is going to prove a major challenge for government, says the Foundation.

Nye Cominetti, Senior Economist at the Resolution Foundation, said:

“Private sector pay growth surged in late 2022 as a result of a tight labour market, though with inflation still in double-digits it has not been enough to prevent pay packets from shrinking.

“But the labour market is now at a turning point, with vacancies falling, and rising unemployment concentrated among young people.

“Looking ahead, the labour market stories of 2023 are likely to the return of rising unemployment, followed later in the year by the far more welcome return of real wage growth.”