Job openings in the UK experience a more moderate decrease, and average wages remain stable
Headline: UK Job Market Shows Signs of Stabilisation Amid Ongoing Challenges
The UK job market appears to be showing signs of stabilisation after a difficult period, but ongoing cost headwinds and weak labour demand continue to pose challenges.
According to data released by the Office for National Statistics (ONS) on Tuesday, the unemployment rate held steady in April to June at 4.7%, a four-year high. This figure comes after a decline of 8,000 in payrolled employees in July 2025 compared to June 2025, marking the smallest decline since January.
The decline in employment is part of a broader annual reduction of 164,000 payrolled employees (0.5%) compared to July 2024. Sectoral data show a notable employment decrease in accommodation and food services (-108,000 on the year) but gains in health and social work (+67,000), indicating uneven sectoral impacts.
The slowdown in hiring can be attributed to factors such as increased National Insurance (payroll tax) and a substantial rise in the National Living Wage implemented in April, which created headwinds especially in consumer services sectors.
Despite the challenges, annual wage growth remains steady around 5.0% excluding bonuses and is outpacing inflation, which helps workers' real incomes but raises concerns about cost pressures for employers possibly leading to higher prices for consumers.
James Smith, developed market economist at ING, stated that the data tallies with some of the business surveys which suggest hiring appetite has begun to improve after a torrid spring. However, the number of job vacancies fell by 44,000 to 718,000 between May and July, indicating that demand for labour remains weak.
The Bank of England cut its key interest rate to 4% last week, the lowest level since March 2023, in an attempt to stimulate economic growth. Inflation in the UK remains at 3.6%, fueled by housing and transport costs.
Richard Carter, head of fixed interest research at Quilter Cheviot, states that the Bank of England faces a fine balancing act. With the MPC split on the pace of easing, these latest numbers could tip the balance towards further cuts to shore up the economy.
The average annual wage growth in the private sector eased slightly to 4.8% from 4.9%. Vacancies in the UK are below pre-Covid levels in virtually all sectors, indicating a weak labour market.
In conclusion, the small decline in payrolled employees in July 2025 reflects ongoing subdued labour demand amid cost headwinds from policy changes on taxes and wages. While not indicating a severe downturn, this signals cautious employer behaviour with implications for slower employment growth and persistent labour market challenges within the UK economy.
[1] Office for National Statistics (2025). [Payrolled employment]. [online] Available at: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemploymenttypes/bulletins/uklabourmarket/latest
[2] Office for National Statistics (2025). [Average weekly earnings]. [online] Available at: https://www.ons.gov.uk/economy/inflationandpriceindices/peopleearningsandunemploymenteconomy/bulletins/averageweeklyearnings/latest
[3] Office for National Statistics (2025). [Vacancies]. [online] Available at: https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/jobvacancies/bulletins/uklabourmarket/latest
[4] Hargreaves Lansdown (2025). [Economic commentary]. [online] Available at: https://www.hl.co.uk/newsroom/economic-commentary/2025/08/05/uk-economy-growth-slows-in-q2
- The ongoing subdued labour demand and cost headwinds from policy changes such as increased National Insurance and a rising National Living Wage in the business sector could impact the finance industry, particularly in the consumer services sectors.
- Despite the challenges in the UK job market, annual wage growth in the private sector remains steady, outpacing inflation, which could have implications for consumer finances and possibly lead to increased prices.
