Employment data puts pressure on chancellor ahead of Budget, says MHA adviser

Slowing momentum in the jobs market may force the chancellor to make tax changes in next month’s Autumn Budget, according to a leading economic adviser.

Prof Joe Nellis, economic adviser at Lancashire accountancy and advisory firm MHA, was speaking after the UK’s latest jobs data showed unemployment rose to 4.8 per cent in August.

The data revealed that hiring momentum has slowed across most sectors, with many employers holding off on new recruitment or scaling back hours instead of making redundancies.

While this suggests a degree of resilience, it also signals businesses are operating with caution amid fragile demand, elevated borrowing costs, and uncertainty ahead of the Autumn Budget, according to MHA.

Nellis said: “This is having a particular impact on employment prospects for young people entering the workforce for the first time, for both graduates and non-graduates.

“The debate around AI rages on, and while some businesses are claiming their entry-level recruitment is slowing as AI proves able to complete tasks that are often the responsibility of these employees, the more important driver of this is hiring costs.

“The increase in the minimum wage and employer NICs have made it difficult for businesses to invest in young talent, and we are seeing this reflected in the high levels of youth unemployment.”

Pay growth, meanwhile, continues to ease over the medium to long-term. Regular pay (excluding bonuses) rose by 4.7 per cent, notably slower than in mid-2024 and the slowest growth since May 2022.

Public sector pay, lifted by recent settlements in education and health, remains stronger but the overall trend points to cooling wage pressures.

The slowdown will have direct implications for the Chancellor’s fiscal strategy, according to Nellis.

He added: “Weaker earnings growth could reduce income tax receipts, while persistently high unemployment will increase welfare spending, complicating efforts to balance the public finances. At the same time, slower wage inflation may give the Bank of England more room to cut rates in 2026, easing some fiscal pressures.

“The Budget is likely to hinge on this data: a softer labour market strengthens the case for targeted tax reliefs or investment incentives to support growth in employment, while the Treasury must still reassure markets that government debt remains on a sustainable path. The challenge will be to rekindle confidence without reigniting inflation, a delicate act with high political and economic stakes.”