Core issues in the jobs market on the eve of the Spring Budget

interactive investor comments on the ONS labour market overview.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The good news is unemployment in the UK continues to remain close to its record low and there is further indication that economic inactivity is on the turn. The bad news is issues in the labour market remain clear to see.

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“While the number of people neither working nor looking for a job fell overall, between November 2022 and January compared with the previous three-month period, largely driven by a drop in young people, it is still significant above pre-pandemic levels. What’s worrying is those inactive because they were long-term sick increased to a record high. This gives credence to rumours that the government is set to announce a measure allowing people to continue claiming sickness and disability benefits if they find work in the Spring Budget tomorrow, because clearly something needs to be done to address the issue.

“Although the number of vacancies has fallen since last summer, it is still well above pre-pandemic levels, and there remains a major mismatch between skills required for available jobs and those of available workers. There also remains a need to address the legacy of the pandemic, which has seen workers in older age groups giving up on work through choice or due to long-term sickness. There have been rumours of an increase in the pension lifetime allowance and changes to rules that restrict the amount you can pay into a pension and still receive tax relief once you start to draw an income from your pension pot, to get the nation’s most experienced and knowledgeable minds back into the fold.

“The latest data on wages shows that the gap between the pay rises being handed to public sector workers, and those in the private sector has narrowed sharply (7% versus 4.8%), but it remains significant. The disparity in pay is likely attributed to private sector employers offering stronger bonuses to attract and retain talent in the tightest labour market in years.

“Overall wage growth still cannot keep pace with inflation, which continues to run hot despite cooling in recent months. The resulting squeeze on real incomes is a key factor behind the sluggish state of the economy. Public sector workers are facing a bigger hit than those in the private sector, which has led to widespread industrial action in recent months. The hope is the Spring Budget will contain solutions to curb further strike action.”