Welcome jobs boost, but signs that the post-crisis surge is reaching its limits

The proportion of people in work in the UK recorded a modest uptick in the first quarter of 2016, confounding the view that uncertainty in the run-up to the EU referendum would hamper jobs growth, according to the Resolution Foundation’s analysis of today’s (Wednesday) ONS labour market statistics.

The employment rate increased to 74.2 per cent in the three months to March, the highest since records began. However, the Foundation notes that the longer-term picture shows a marked slowdown in the pace of employment growth and falls in unemployment since last Autumn, causing it to agree with the ONS’s speculation that the labour market is ‘cooling off’.

With further gains harder to come by, the Foundation says that a new approach will be needed to get employment rising strongly again and the government’s full employment ambition back on track.

Real earnings growth fell to 1.8 per cent as inflation ticked up slightly. That’s below the pre-crisis trend of 2.2 per cent and comes despite inflation of 0.5 per cent remaining well short of the Bank of England’s target of 2 per cent. The Foundation says that while the new National Living Wage will prompt strong wage growth for the lowest earners, other action – notably a long overdue upturn in productivity – will be needed to get stronger wage growth at all levels once inflation heads back towards target.

Laura Gardiner, Senior Policy Analyst at the Resolution Foundation, said:

“Despite record-high employment, there are clear signs that the remarkable post-crisis pace of labour market recovery has been slowing in recent months.

“While uncertainty associated with the EU referendum may well have contributed a little to this cooling, the truth is that employment has been broadly flat since October last year. Given this backdrop, today’s figures instead suggest that the UK’s jobs recovery is reaching its limits.

“As we move out of this post-crisis phase, a new approach will be needed to encourage further employment growth, and to get earnings back on track as inflation rises. That’s a huge task whatever the result on 23 June.”