The UK labour market showed signs of strain in March as both payrolled employment and job vacancies experienced a noticeable decline ahead of new tax measures and escalating trade tensions with the United States, official figures revealed on Tuesday.
According to preliminary data from the Office for National Statistics (ONS), the number of UK payrolled workers fell by 78,000 in March compared to February. This marks a sharp contrast to the more modest drop of 8,000 seen the previous month, suggesting a worsening trend.
Additionally, job vacancies in the three months to March slipped below pre-pandemic levels for the first time since 2021, signaling a slowdown in employer demand.
Despite these negative indicators, wage growth remained strong. The ONS reported that average regular pay (excluding bonuses) rose at an annual rate of 5.9% in the three months ending February. This persistent wage growth poses a challenge to the Bank of England, which is trying to balance inflation control with maintaining economic momentum.
The timing of these labour market shifts comes just before the implementation of business tax increases announced in the Labour government’s first budget in October. Many businesses have expressed concern that these tax hikes, along with increases in the minimum wage, would force them to cut back on hiring or restrain wage increases.
Ashley Webb, an economist at Capital Economics, noted that the latest data “provides some tentative evidence that businesses started to respond to rises in business taxes and the minimum wage… by reducing headcount.”
The UK unemployment rate remained unchanged at 4.4% in the three months to February. However, there are growing concerns that continued uncertainty—particularly surrounding U.S. trade policy—could further weaken the labour market.
The UK was recently hit with a 10% tariff on exports to the U.S., part of a broader protectionist move under President Donald Trump’s renewed trade policy. Key sectors such as steel, aluminium, and automobiles are expected to be affected.
Economists warn that these pressures could complicate the Bank of England’s decision-making. With wage growth still outpacing inflation targets, the central bank may hesitate to aggressively lower interest rates, despite sluggish economic output.
Yael Selfin, Chief Economist at KPMG UK, commented: “With pay growth still running above levels consistent with the inflation target, the Bank of England will likely continue its gradual approach to cutting interest rates. However, that will be set against growing risks to the domestic economy which are likely to depress labour market activity.”
Earlier this year, the BoE halved its economic growth forecast for 2025, citing rising global uncertainties and waning business confidence as key reasons. In February, the Bank trimmed its interest rate by 0.25%, marking the third rate cut in six months as it attempts to navigate the complex economic terrain.
