The end to fast UK employment growth is imminent, a new report shows

Georgina Varley
Latest Figures Show UK Unemployment Has Risen Above 2 Million
The unemployment rate is expected to rise from 4.8 per cent in 2017 to 5.4 per cent in 2018 (Source: Getty)

The number of people in employment is set to increase a moderate 0.6 per cent this year and then fall by 0.1 per cent in 2018, according to the EY ITEM Club special report on the labour market published today.

These figures are significantly removed from the 1.4 per cent increase seen in 2016.

There are signs, especially in the consumer sector, that the pace of expansion is slowing. As a result, there will be a weaker demand for workers.

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The report does, however, argue that the consequences of an ageing population and lower levels of immigration for the supply of workers will cushion the impact.

Growth in the economically-active population is, therefore, anticipated to slow from 0.9 per cent to 0.4 per cent this year. As a result, the unemployment rate is expected to rise from 4.8 per cent in 2017 to 5.4 per cent in 2018.

Martin Beck, senior economic advisor to the EY ITEM Club, said: “The UK labour market may be starting to become a victim of its own success. As the proportion of people in work has climbed ever higher, firms may have found it more difficult to fill vacancies, resulting in greater utilisation of the existing workforce and slower jobs growth.”

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The report expects UK average earnings growth to rise marginally to just under 3 per cent this year, with pay continuing to rise at a similar rate in 2018.

“The prospect of a rise in unemployment and pay growth remaining weak means that the case for the Monetary Policy Committee (MPC) to keep monetary policy on hold for a prolonged period is a strong one. Meanwhile, our expectation that a revival in pay growth is unlikely will be bad news for the public finances and present another challenge for whoever takes the reins of economic policy after the election,” added Beck.

The study further identifies the potential for technology and machines to displace some workers. There is likely to be a boost in the supply of workers competing for jobs in sectors where machine advances are less applicable, putting downward pressure on wages in these areas.

“With labour supply expected to slow, businesses need to take a closer look at their future skills needs. They will need to assess how to strike the right balance between allocating capital on skills development, labour savings and labour enhancing technology. This will ensure that they have a workforce fit for their future business strategy,” said Mark Gregory, EY’s chief economist.

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