Britain’s Labour Market Weakens Pre-Tax Hike

By William Schomberg and Suban Abdulla

London (Reuters) – Britain’s labour market showed signs of weakness ahead of this month’s tax hike on employers, as reported on Tuesday. Despite this, wage growth remained strong, complicating the situation for the Bank of England (BoE), which is also anticipating an economic downturn due to U.S. trade tariffs.

Key Highlights

• Job Vacancies: For the first time in nearly four years, job vacancies fell below pre-COVID levels in the first three months of 2025, according to the Office for National Statistics (ONS).
• Employment Decline: Provisional data indicated a decrease of 78,000 employees in March, marking the largest drop since early 2020. This revised figures from February showcased a loss of 8,000 jobs instead of a previous estimate of a 21,000 gain.
• Economic Expectations: Sanjay Raja, Deutsche Bank’s chief UK economist, noted that the softening of the job market could lead to cuts in the Bank Rate in May as trade uncertainties loom and labor market slack emerges.
• Rate Cut Predictions: Investors foresee a greater than 90% chance the BoE will reduce rates by a quarter percentage point on May 8, following the upcoming meeting.

Impact of U.S. Tariffs

U.S. President Donald Trump’s tariffs are expected to slow down the global economy, negatively affecting Britain and directly impacting its exports.

Rising Wages

Yael Selfin, KPMG UK’s chief economist, predicts that the increase in labor costs from April, due to rising social security contributions, may soon slow wage growth. Britain’s minimum wage saw an increase of nearly 7% this month, potentially affecting hiring decisions.

The BoE is currently assessing if inflation pressures in the labor market are subsiding enough to justify further interest rate cuts.

Inflation Outlook

Official reports expected to be released on Wednesday indicate a consumer price inflation of 2.7% for the year ending in March. This would reflect a decrease from 2.8% in February but remain above the BoE’s 2% target. The bank anticipates inflation could rise to nearly 4% later this year.

Earnings Growth

The ONS indicated that average weekly earnings, excluding bonuses, increased by 5.9% in the three months leading up to February compared to a year prior, surpassing the revised growth of 5.8% in January. Private-sector pay without bonuses, a vital indicator for the BoE, also rose by 5.9% over the same year.

A Reuters poll had forecast slightly stronger growth of 6.0% for both basic pay measures.

Unemployment Rate

Despite a survey overhaul impacting its accuracy, the ONS reported the unemployment rate held steady at 4.4%. However, Gabriella Dickens, G7 economist at AXA Investment Managers, suggested the actual rate might be closer to 4.8% or 4.9%.