Labour Market Update – February 2024


Labour Market Update – February 2024

Labour Market Overview

The latest ONS Labour Market Overview sees the re-introduction of the Labour Force Survey data:

  • UK unemployment rate decreased to 3.8%, 1.32 million people unemployed
  • Unemployment amongst young people remains high (aged 16-17 = 20.9% / aged 18-24 = 10.3%)
  • Employment rate was largely unchanged at 75.0%, 33.17 million people employed
  • UK economic inactivity rate was largely unchanged on the quarter at 21.9%, but higher than 12 months ago due to long term sick remaining at historically high levels
  • 28 million people are economically inactive, an increase of 120,000 on last year and 728,000 higher than pre-pandemic levels
  • Vacancies fell again to 932,000, the 19th consecutive period fall, down 209,000 from a year ago, but higher than pre-pandemic levels
  • Annual growth in regular pay without bonus increased by 6.2%, and with bonus by 5.8%. Adjusted for inflation, annual growth regular pay was 1.8% and total pay was 1.4%
  • 41 million people were claiming Universal Credit in January 2024. This has increased from 5.79 million in January 2023 and is more than twice as high as pre-pandemic levels. There are currently 1.44 million people searching for work
  • Redundancies increased to 4.0 per thousand employees, up 0.6 since last year.

The ONS has confirmed that from the 13th February 2024, they have re-instated the re-weighted Labour Force Survey (LFS) estimates to enable them to provide wider labour market information. The new estimates include the latest estimates of the size and composition of the UK population, improving the representativeness of the LFS estimates. These will replace the experimental estimates that they have been publishing since October 2023. The new weighting methodology revises the number of people in all three labour market groups compared to the pre-October 2023 weighting approach. The revised figures for the quarter September to November 2023 are (figures in brackets are the old weights):

  • Employment – 75% (75.7%)
  • Unemployment – 3.93% (3.86%)
  • Economic inactivity – 21.9% (21.2%)

The CIPD’s latest Labour Market Outlook sees the tide turning on pay. Expected basic pay awards have fallen to 4%, matching CPI inflation. Decreasing staff levels is higher on the agenda in response to higher wage costs and labour market tightness is reducing, with fewer employers expecting to have significant problems filling vacancies going forward.

KPMG and REC, UK Report on Jobs: North of England reports that the number of permanent vacancies across the North of England fell in February, thereby breaking a three year sequence of expansion. However, the rate of decline was only marginal. At the same time, recruiters in the North of England signalled a decrease in the number of job openings for temporary workers. Though only slight, the reduction was the first recorded since October 2020. It also reported that adjusted for seasonal factors, the Temporary Wages Index recorded above the 50.0 no change mark in February, to signal the third successive monthly rise in temp pay across the North of England. The latest uptick was the fastest in four months and solid overall. Furthermore, the North of England signalled the strongest rate of temp wage inflation of all four English regions monitored by the survey. The same report also advised recruitment agencies in the North of England registered a drop in temp billings for the first time in four months in February. According to anecdotal evidence, demand for temporary workers had deteriorated. Overall, the reduction was the joint-quickest seen since June 2020. Of the four monitored English regions, only London recorded a faster decline in temp billings, while the Midlands bucked the wider UK trend and recorded a modest increase.

The Resolution Foundation’s latest Labour Market Outlook for Q1 2024, found that the national story on employment is not all about the rise of inactivity due to ill health and the resulting fall in employment.

  • First, not everywhere has seen employment fall
  • Second, the rise in economic inactivity due to ill health has been geographically uneven
  • Finally, some areas have seen both rising inactivity due to ill health and rising employment – with other forms of economic inactivity pulling in the opposite direction.

The British Chamber of Commerce (BCC) latest Quarterly Economic Forecast predicts that unemployment will stay higher for longer hitting 4.8% by the end of 2025. The BCC latest Quarterly Recruitment Outlook survey reported:

  • 76% of firms attempting to recruit faced difficulties, a slight increase from last quarter
  • 82% of firms in the hospitality sector said they were most likely to report challenges in hiring staff
  • 68% said labour costs are a financial pressure
  • 59% had attempted to recruit in the quarter

Jane Gratton, Deputy Director Public Policy at BCC said: “Our data shows the recruitment crisis continues to loom large for many businesses across the UK”. 

Personnel today reports on BDO’s latest Employment Index fell for the 7th consecutive month, reaching 98.77 points which is its weakest reading since 2013. A reading below 100 indicates a contraction in demand for employees. Further declines are expected as the labour market cools. (BDO is an international network of accounting and business advisory firms).

The academic think tank ‘UK in a Changing Europe’ published The State of the UK Economy 2024 and looks at the changes in the labour market, including an ageing workforce with fewer young people replacing them, in poorer health and with lower labour market migration. They estimate that employment growth will halve over the next two decades to an average of 120,000 a year, and nearly half of this will be accounted for by higher employment in those in their 60s and 70s. Over the last decade the youth labour force has shrunk by half a million to 4.2 million due to lower birth rates and many staying in education. As more older people are leaving the workforce, there are not the young people available to replace them.

The latest S&P Global UK Business Outlook pointed to the highest sentiment among UK companies towards future activity levels in two years. A net balance of +49% of UK private sector companies anticipated a rise in business activity over the next 12 months, according to survey data collected between 12-27 February. This was the highest recorded since February 2022, having increased sharply from +37% in October 2023. Hiring and investment forecasts were dialled up in February after a subdued end to 2023, although research and development spending is set to remain stable. With firms expecting to find greater opportunities for growth, plans to raise capital expenditure advanced in February. The net balance of businesses predicting an increase in capex (+8%) was the greatest seen in two years and in line with the long-run trend. Forecasts improved at similar speeds in the services (+8%) and manufacturing (+7%) sectors, with both up from +3% in the prior survey period. The near-term outlook for UK employment picked up to the highest for a year in February, with a net balance of +24% of firms expecting to increase their workforces by early 2025. Services firms were more likely to plan an expansion in staffing (+25%) than manufacturing firms (+15%). Forecasts in the former category jumped to a 12-month high, while those in the latter were little-changed from October’s recent low.

A new statutory Code of Practice has been published, along with the Government’s response to last year’s consultation on controversial ‘fire and rehire’ practices, clarifying how employers should behave when seeking to change employee’s terms and conditions. The Code aims to ensure that employees are properly consulted and treated fairly. It makes it clear to employers that they must not use threats of dismissal to pressurise employees into accepting new terms. They should also not raise the prospect of dismissal unreasonably early or threaten dismissal where it is not envisaged. In future the courts, and employment tribunals, will take the Code into account when considering relevant cases. This will include on unfair dismissal claims where the employer should have followed the Code. Employment tribunals will have the power to apply an uplift of up to 25 percent of an employee’s compensation if an employer unreasonably fails to comply with the Code. The Government has laid the Code of Practice in Parliament for approval by both Houses. Subject to that approval, the Code will then be brought into effect later in the summer.

The February edition of the Employer Bulletin brings all the latest HMRC updates and guidance to support employers, payroll professionals and agents. Included in this edition are important updates on 2024 National Insurance contributions rate changes, end of year reporting, simplifying the reporting of Income Tax and National Insurance contributions on benefits in kind and upcoming changes to Paternity Leave and Pay.

Immigration Update

In October 2023, the government announced changes to the UK immigration policy. The timeline for the implementation of these changes has been announced by the Home Secretary:

  • 6 February 2024 – immigration Health Surcharge raised to £1,035
  • 11 March 2024 – reforms to restrict care workers bringing dependents and require care providers to register with the Care Quality Commission
  • 14 March 2024 – laying of the Immigration Rules before Parliament
  • 4 April 2024 – implementation of the increased earnings threshold on the Skilled Worker Route
  • 11 April 2024 – first incremental increase to the threshold for Family visas

The Migration Observatory has published a briefing: Migrants in the UK labour market: an overview. The briefing provides data on migrants’ labour market integration and the jobs that they do in the UK labour market, including:

  • In Q4 2022, foreign born people made up one fifth of the working population
  • Migrant men were more likely to be employed that UK-born men
  • Migrants were overrepresented in hospitality, transport and storage, information, communications and IT sectors

‘UK in a Changing Europe’ also reports on the impact of the post-Brexit immigration system. The new system was widely expected to mean lower migration to the UK. Whilst EU migration has declined, non-EU migration has hit record levels. More than half of Skilled Worker Visas were for care workers, with only 12% being middle skilled non-health jobs like butchers. Main applicants on work visas make up only a minority of immigration. Up to June 2023, only around 17% on non-EU citizens were main applicants.

Ukraine visa routes have been consolidated under a Change to the Immigration Rules.  The Family Scheme is closed in favour of the more sustainable Homes for Ukraine route and the Ukraine Extension Scheme will close to new applications from 16th May and be replaced with the Ukraine Permission Extension Scheme.


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