Wage growth weakens as the labour market cools ahead of today's Budget

Real pay, including bonuses, fell 3.5% as wage and bonus growth failed to keep up with rising inflation, which stands at 10.1%.

Pay growth in the private sector fell for the first time in a year from 7.3% to 7%. Meanwhile public sector wages only saw a rise of 4.8%.

The labour market figures also signal a cooling job market as the number of job vacancies fell for the eighth consecutive period by 51,000 to 1.1 million from December to February as employers pause hiring amid economic uncertainty.

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The unemployment rate was unchanged at 3.7% in January and overall employment rose by 0.1 percentage points to 71.5% at the start of the year, the ONS said.

Meanwhile, the economic inactivity rate decreased to 21.3% in November 2022 to January 2023, down from 21.4% in the three months up to December. The decrease was driven by people aged 16-24.

Redundancies rose to pre-pandemic levels again. From November to January, the number of people reporting redundancy rose to 3.3 people per thousand employees.

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There were 220,000 working days lost due to strikes in January 2023, down from 822,000 in December.

Joanne Frew, Global Head of Employment and Pensions at DWF noted that despite the fall in vacancies, the figures continue to demonstrate a "stable labour market". 

"The highlights for the period show a UK employment rate of 75.7%, 0.1% higher than the previous quarter.  The UK unemployment rate was estimated at 3.7%, largely unchanged compared with the previous quarter.  The UK economic inactivity rate was estimated at 21.3%, 0.2% lower than the previous three month period. 

"The World Cup reportedly helped the UK avoid a recession and will also have undoubtedly helped to maintain the resilient employment rate during this period as pubs and restaurants experienced a surge in trade. 

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She added: "In addition to industrial action, attraction and retention of staff remains a cause for concern for employers as the cost of living crisis continues to bite.  Employees are demanding more pay and it is often the case that the employer simply cannot meet the demand.  

"Employee engagement has never been more important.  Employers are looking at new and innovative ways to attract and retain talent – from increased flexibility such as ’work from anywhere’ policies to offering employee discount schemes. 
 
"Further, the latest figures show that between December 2022 and February 2023, the estimated number of job vacancies fell by 51,000 over the quarter, with economic pressures resulting in a cautious approach to recruitment.  However, overall the number of vacancies remains high increasing the pressure on the Government to encourage people who have dropped out of the working population to return to the job market."

At his first budget tomorrow, Jeremy Hunt will announce measures to lure older workers back into the labour market by raising the tax-free limit on pensions to £1.8 million.

Jonathan Boys, senior labour market economist for the CIPD, the professional body for HR and people development, said the figures highlight the need for the Chancellor to focus on a broad range of measures to boost labour market supply and help more people to get back into work.

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“Ahead of the Budget, policymakers will be considering how to boost labour supply to ease shortages and ensure growth. Today’s stats show that although the economic inactivity rate decreased, it remains 1.1% higher than pre-pandemic. 

"Policymakers should focus on boosting labour supply from all age groups, and there is an urgent need to reform the Apprenticeship Levy into a training and skills levy. This is reinforced by CIPD research, which finds that there are more 16-24-year-olds not working but who would like to work, than there are 50-64-year-olds, despite the latter being the focus of reducing economic inactivity. 

"More funding is needed for apprenticeships for young people and increased flexibility for employers to train their existing workforce through other forms of training and development.”