The weakening labor market has been a trend for several years. While cyclical factors explain part of the slowdown, long-standing challenges -- from rising labor costs to tighter regulation and persistent skills mismatch -- continue to weigh on Britain's labor market.

by Xinhua writer Zhang Yadong

LONDON, Sept. 20 (Xinhua) -- Britain's labor market continues to cool as wage growth and labor demand show signs of slowdown.

The Office for National Statistics (ONS) reported on Tuesday that from May to July, average regular pay (excluding bonuses) rose 4.8 percent year-on-year, down from 5 percent in the April-June period. Data show that labor demand declined in 9 out of 18 industrial categories between June and August, which aligns with the ongoing contraction in Britain's manufacturing.

Stressing that the unemployment rate has reached a four-year high of 4.7 percent, Monica George Michail, associate fellow at the National Institute of Economic and Social Research, said that the recruitment momentum is slowing rapidly, and predicted that pay growth could slow further to around 4 percent by yearend.

The weakening labor market has been a trend for several years. While cyclical factors explain part of the slowdown, long-standing challenges -- from rising labor costs to tighter regulation and persistent skills mismatch -- continue to weigh on Britain's labor market.

The Confederation of British Industry (CBI) reported on Sunday that about 73 percent of businesses see labor costs as the biggest threat to competitiveness in the British labor market -- the first time it has ranked as the top concern since the survey began.

Higher costs stem from increases in National Insurance contributions and the statutory minimum wage. According to the CBI, the rise in National Insurance and three consecutive hikes in the National Living Wage have together added more than 24 billion pounds (32 billion U.S. dollars) annually to business costs.

"Our latest survey shows labor costs remain the biggest cost pressure for SMEs (small and medium enterprises) in the United Kingdom, with 73 percent of firms reporting this issue," said Jane Gratton, deputy director of public policy at the British Chambers of Commerce, adding that the ongoing impact of business cost pressures, most notably from the national insurance hike will continue to hit the labor market.

Regulatory changes have compounded employers' difficulties.

First, post-Brexit reforms aim to reduce reliance on the European Union (EU) workers, with higher visa fees and raised minimum wage thresholds reshaping labor supply. Industries such as hospitality, agriculture, construction and care, once reliant on EU workers, now face difficulties hiring staff. Even when staff are recruited, higher costs follow.

Second, the Employment Rights Bill, which aims to strengthen worker protections, is imposing tighter restrictions on employers regarding dismissals, benefits and workplace flexibility.

The CBI's report showed that nearly 78 percent of companies believe the bill will negatively affect economic growth, investment, jobs or discretionary benefits. More than 86 percent of businesses said stricter dismissal rules increase the likelihood of being taken to tribunal by employees during probation, forcing employers to be more cautious in hiring.

Despite labor oversupply, many employers, especially in skill-intensive sectors, struggle to recruit qualified staff. Surveys show that around 76 percent of companies faced hiring difficulties in Q1 this year, with only a slight decline to 73 percent in Q2. Logistics, hospitality, construction and manufacturing were among the hardest-hit industries.

A report by City Guilds found that 76 percent of construction firms struggle to recruit skilled workers, and 84 percent believe the industry faces a severe skills shortage. The Construction Industry Training Board estimated that the sector will need to recruit 239,300 additional workers by 2029 to meet the government's target of building 1.5 million new homes.