(Bloomberg) -- UK businesses have shed almost 200,000 jobs this year, tax data show, suggesting the labor market is already unraveling in a warning sign for both Prime Minister Keir Starmer and the Bank of England.
The number of employees in the private sector has fallen by 1% to just above 21 million since the end of 2023, according to HM Revenue & Customs data released Tuesday. It is calculated by removing categories dominated by public-sector jobs, including health, education and the civil service, which have held up better over the last year.
The findings contrast with workforce figures published by the Office for National Statistics that suggest the jobs market has marginally tightened. However, economists are closely watching alternative gauges like vacancies and payroll tax figures after the official Labour Force Survey was hit by a drop in response rates.
Job ads also point to an unwinding in the labor market. Private firms posted just over half a million jobs in the three months to November, a 12% decline this year, according to ONS figures published Tuesday.
A cooling jobs market is a dovish signal for the Bank of England, which is trying to gauge demand for workers to decide how fast it can cut interest rates. But it’s a blow for the new Labour government, which has pledged to drive up employment and living standards. Figures last week showed the economy is smaller than when Starmer took office after contracting again in October.
The BOE has only reduced interest rates twice this year, fearing that a resilient jobs market is keeping wage pressures too high. Some of those fears were confirmed when the latest pay figures showed wage growth accelerating for the first time in over a year. That’s led traders to significantly pare bets on the BOE cutting three times in 2025.
Yet one of the biggest falls in employment in the tax data was seen in hospitality, which is being monitored closely for price pressures in the services sector.
James Smith, developed market economist at ING, said the payroll tax data is “one of the reasons we expect a more aggressive rate cutting cycle in 2025 than markets expect.”
“So far the fall isn’t massive and there’s little sign in other data that this is because layoffs are spiking. But it’s another sign that the jobs market has continue to cool over the past year.”
The figures chime in with recent surveys indicating businesses are letting go of workers they’ve held on to in recent years — and of hopes that economic conditions will improve. That’s as employers brace for sharp increase in payroll taxes in April, together with the third large increase in the minimum wage in as many years.
S&P Global revealed private-sector firms cut jobs at the fastest pace since the global financial crisis in December, outside of the pandemic, while the Recruitment & Employment Confederation said vacancies dropped the most in four years. Separate figures from Barclays, which use LinkedIn data, suggest employment growth has stagnated over the last two years after falling in 2022.
“Our alternative employment growth indicator adds to the evidence base that employment growth has been weaker for longer than the official LFS data would suggest,” Barclays UK economists Jack Meaning and Abbas Khan wrote in a report. “The labor market has been loosening, and will continue to loosen in coming months.”
Overall employment levels are currently propped up by the public sector, with categories including education, health and public administration posting a 2% increase in payroll numbers since January. Figures from job-search website Indeed also showed education and health-related jobs have held up better than postings where private businesses are the main employers.
The jobs market may not be able to rely on that public service cushion for much longer. The UK government has already announced plans to cut over 10,000 civil service jobs to free up funds for spending on priorities like economic growth.
“Constrained public finances will likely weigh on public sector hiring demand with the focus more on efficiency,” said Jack Kennedy, senior economist at Indeed. “That could be a downside risk to the labor market that the BOE will need to consider.”
©2024 Bloomberg L.P.