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The UK job market is slowly cracking, warns a new analysis note from Deutsche Bank.
"Despite being relatively resilient thus far, cracks in the labour market are emerging," says Sanjay Raja, Senior Economist at Deutsche Bank..
The call comes despite the latest ONS labour market data showing a rise in employment of 220k over the three months to September.
However, Raja is looking beyond the headlines, noting the number of employees dropped 134k relative to last month (three months to Aug-24).
He notes that the number of redundancies also increased to 90,000 in September, running just shy of 100,000 per month this year.
Like other economists, Raja warns that the ONS measure of unemployment has issues due to data collection methods and might not adequately gauge the labour market's quantity side.
This is why economists have placed additional emphasis on other sources of information to build a more accurate picture of the UK's job market.
"Nevertheless, alternative data sources paint a similar picture – if not a more pessimistic one," says Raja.
He cites the ONS' Workforce Jobs data, which showed a 24k fall in employment relative to Q1-24. The latest HMRC payroll data show three connective months of shrinking payrolls (-42k across Aug-Oct).
Vacancies have also dropped significantly, with current job openings tracking 14% below levels seen this time last year.
"Surveys such as the KPMG/REC survey, the PMIs, and the Bank Agents have also highlighted easing recruitment difficulties and a freeze on hiring plans," says Raja.
In addition, "the impending employer NICs increase will put more pressure on jobs too – this is
something we will be watching very closely," says Raja.
The budget, announced in October, saw Chancellor Rachel Reeves significantly raise the tax the government charges businesses when paying salaries (the employer's national insurance contribution). The government also lowered the threshold that this tax is applied.
The minimum wage will also rise by an inflation-busting 6.7% in April 2025, in addition to the 9.8% rise announced in April 2024.
Employers say many roles will become unviable for businesses and risk increasing unemployment.
"Many firms put new orders and recruitment on hold, and the large increases in taxes and other business costs in the October Budget mean that things are likely to get worse before they get better," says Julian Jessop, Economics Fellow at the Institute of Economic Affairs.
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