The UK jobs market is showing clear signs of a slowdown, with unemployment rising, vacancies shrinking and average pay growth easing as employers cut back on hiring.
New official figures released on Tuesday reveal a shifting labour landscape that experts say points to a more cautious outlook among businesses and persistent uncertainty for jobseekers.
Unemployment increased to 4.7 percent in the three months to July, up on both the previous quarter and a year earlier. Meanwhile, the number of people on company payrolls fell by 8,000 in August, the second consecutive monthly drop. Payroll numbers have now declined by 127,000 over the past year, falling to 30.3 million, in a reversal of much of the jobs growth seen since the pandemic.
The shrinking demand for staff is being felt across many parts of the economy. Job openings fell again, with the number of advertised vacancies down by 10,000 to 728,000 in the three months to August. This marks the thirty-eighth period in a row where vacancies have declined, underlining a persistent slowdown in recruitment. More than half of industry sectors reported fewer openings, with nine out of 18 registering a fall.
Fewer jobs, more competition
Behind the headline figures is a picture of a jobs market that is becoming tougher for candidates. The Office for National Statistics (ONS), the UK’s official source for economic and social data, recorded a fall of 182,000 workforce jobs between March and June, taking the total to 36.8 million. While there are still more jobs than a year ago — an increase of 139,000 — the quarterly drop is a signal that employers are holding off on new recruitment.
At the same time, the number of people out of work and looking for jobs is on the rise. The latest unemployment rate, at 4.7 percent, is now well above the lows seen in recent years. The claimant count, which measures those receiving unemployment-related benefits, rose on the month to 1.686 million, although it is still below the level of a year ago.
Economic inactivity — the proportion of working-age people who are neither in work nor seeking a job — fell slightly to 21.1 percent. This suggests that some people who had previously dropped out of the workforce are now returning, possibly to help manage rising living costs.
Wage growth loses momentum
A further sign of cooling comes from the pay data. Average weekly earnings, excluding bonuses, rose by 4.8 percent in the year to July, down from 5 percent previously. The figure for total pay, which includes bonuses, was 4.7 percent. While wage growth remains relatively high by historical standards, it has not kept pace with price rises. When adjusted for inflation using the Consumer Prices Index including owner occupiers’ housing costs, real regular pay rose by just 0.7 percent.
Growth in public sector pay continued to outpace the private sector, with regular earnings up by 5.6 percent compared to 4.7 percent in private firms.
Commenting on the figures, Liz McKeown, director of economic statistics at the ONS, said: “The labour market continues to cool, with the number of people on payroll falling again, while firms also told us there were fewer jobs in the latest period.”
Economists expect the Bank of England to hold interest rates at 4 percent when it meets this week, citing the need to balance inflation risks against signs of a weaker jobs market.
Interest rates and inflation add to uncertainty
Wage trends remain closely watched by the Bank of England, which considers pay growth an important factor in inflation. Inflation is forecast to remain close to 3.8 to 3.9 percent for August, well above the Bank’s 2 percent target, according to market expectations reported by The Times.
Interest rates were cut to 4 percent in August, the Bank’s fifth reduction in the past year, as policymakers try to support the economy without fuelling further price rises. Rate cuts are generally intended to encourage borrowing and investment, which can boost employment, but also risk adding to inflation if demand rises too quickly.
While overall employment has weakened, the public sector has seen modest growth. The number of people employed in the public sector rose to 6.17 million in June, up by 17,000 since March and by 75,000 over the year.
Labour disputes remain a factor in the employment landscape. The ONS estimates that 83,000 working days were lost to strikes in July, mostly in health and social care. Industrial action has persisted across many sectors as workers seek higher pay and improved conditions.
Mixed signals but a clear trend
The ONS revealed ongoing changes in how it collects its Labour Force Survey data, warning that estimates may be more volatile than usual and advising users to combine its statistics with other measures such as Pay As You Earn real-time information and workforce job counts.
Despite these data challenges, the key takeaway is a labour market that is adjusting to economic headwinds. Fewer vacancies, slowing pay growth and a higher jobless rate all point to a more competitive jobs market for candidates and a greater sense of caution among employers.
With the employment rate for people aged 16 to 64 rising slightly to 75.2 percent, there are still signs of resilience, but the latest figures suggest that the strong labour market seen after the pandemic may be giving way to a period of uncertainty and slower growth.
William Furney is a Managing Editor at Black and White Trading Ltd based in Kingston upon Hull, UK. He is a prolific author and contributor at Workplace Wellbeing Professional, with over 127 published posts covering HR, employee engagement, and workplace wellbeing topics. His writing focuses on contemporary employment issues including pension schemes, employee health, financial struggles affecting workers, and broader workplace trends.
- William Furney
- William Furney
- William Furney
- William Furney
