'No man’s land' economy slows hiring and hinders pay growth

ONS figures showed pay growth at its lowest in two years, with fewer vacancies to go around

Employees’ pay growth was at its lowest in two years, while the employment rate increased in the latest quarter, according to the latest Labour Force Survey by the Office for National Statistics (ONS), published today (15 October).

Meanwhile, the number of vacancies continued to decrease for the 27th consecutive month, measured over July to September 2024.

“Today’s figures suggest an economy stuck in no man’s land, with some businesses likely waiting to see what this month’s budget will bring before committing to major decisions,” said Natasha Kearslake, director of HR consultancy Organic P&O Solutions, speaking to HR magazine.

“It’s becoming clear that wages are cooling, especially in the key services sector, which is likely to heighten calls for an interest rate cut in the coming months.”

Employees’ average regular earnings (excluding bonuses) grew 4.9% in July to August 2024, which was down from 5.1% in the previous quarter. Meanwhile, total annual pay growth was 0.9% in the same period, down from 4% in the last quarter.

The number of payrolled employees decreased by 15,000 between August and September, but increased 113,000 in the past year. 


Read more: UK firms' recruitment strategies fail to diversify workforce


Kearslake noted this showed employers were taking a cautious approach to hiring.

She continued: "The drop in the unemployment rate and the rise in the employment rate might seem like positive news. But this needs to be balanced against persistently high levels of economic inactivity, which suggests we're seeing a reshuffling of the workforce rather than real growth.

“The decrease in payrolled employees – down by 35,000 in August and a further 15,000 in September – is a subtle but important shift that employers should be monitoring closely. It suggests that some businesses are becoming more cautious in their hiring approach.”

Despite the slowdown in hiring, employers remained in control of the job market, according to Michael Stull, managing director for the recruitment firm ManpowerGroup.

Speaking to HR magazine, he said: “Employers are faced with a hiring recession following a long and drawn-out slowdown, and the government is likely to take more time to iron out the finer points of its new Employment Rights Bill. 

“This means that although circumstances remain challenging, employers are still in the driving seat over the coming months.”

Employers should be cautious of upcoming tax increases, Novo Constare, CEO and co-founder of flexible job platform Indeed Flex, told HR magazine.

He warned: “Upcoming challenges loom. The October budget is expected to introduce tax increases, which could limit business spending and slow hiring plans. Employers are likely to take a cautious approach to recruitment, balancing optimism for growth with fiscal restraint.”

The economic inactivity rate was at 21.8% in June to August 2024, which was a decrease in the last quarter and on the year. At the same time, the benefits claimant count increased on the month and the year, to 1.797 million. 


Read more: Jobseeker competition soars to highest in three years


Jack Kennedy, senior economist at hiring platform Indeed, suggested this would hinder employers’ recruitment strategy.

Speaking to HR magazine, he said: “Broader challenges still remain, including high inactivity, which, despite falling slightly in the three months to August, is still above pre-pandemic levels and hinders a full employment recovery. 

“This explains the Labour government's focus on employment support and tackling long-term illness to bring more people back into work.”

Stull encouraged employers to be strategic with their recruitment strategy in the coming months.

He commented: “Those that can should be aiming to encourage more people back into the workforce and remain as focused and strategic as possible with their workforce planning – across areas such as skills-based hiring, flexible working, and talent development – for the next business quarter and into 2025.”