The recent strong growth of the jobs market may not persist in the coming years, according to new economic analysis.
An EY ITEM Club special report on the labour market has indicated that although the number of people in work rose by 1.4 per cent in 2016, this growth is set to decelerate to only 0.6 per cent this year, before contracting by 0.1 per cent in 2018 – the first fall in overall employment levels since 2009.
As such, the UK’s unemployment rate is expected to tick upwards from 4.8 per cent in 2017 to 5.4 per cent in 2018 and 5.8 per cent in 2019, with recent economic growth widely expected to lose steam in the medium-term future.
Jobs data from recent months have shown that hiring rates have been impacted by ongoing skills shortages, manifesting in a lack of qualified candidates for many roles. While this has created demand for skilled professionals, the EY ITEM Club analysis indicates that this is not necessarily translating into improved rates of pay.
Indeed, the report suggests that average earnings growth of only 2.75 per cent is likely to be achieved in 2017, with pay continuing to rise at a similar rate through 2018 and 2019. This remains well below the norm seen prior to the 2008 financial crisis, with inflation leading to rises in consumer prices that will essentially negate substantial increases in real earnings.
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.”