"Hiring intentions have weakened significantly across the labour market and we expect this to persist over the coming months. However, some sectors are set to face a double whammy with the rise in National Insurance contributions, in addition to an increase in the National Living Wage in April. The hospitality and retail sectors are expected to be disproportionately affected by rising costs, as they employ a higher proportion of lower-wage workers.
“Pay growth increased to 5.9% in December; however, we expect a steady downward trend over the coming months. Demand for staff has declined, with vacancies remaining at close to pre-COVID levels. Additionally, there has been a marked improvement in the availability of workers. We expect this to constrain pay pressures and for wage growth to fall closer to 3% by the end of 2025.
“Unemployment was unchanged at 4.4% in the three months to December. We anticipate a modest increase in unemployment this year as firms seek to cut costs as a result of the rising cost burden. However, with economic conditions expected to improve gradually, the unemployment rate could average around 4.5% this year, marginally up from 4.3% in 2024.”
