DWF comments on latest UK labour market statistics

Joanne Frew says: “The latest figures point to a labour market that remains resilient, with employment increasing and unemployment edging down despite the continuing economic uncertainty facing employers.  The UK employment rate increased by 0.2% on the year and on the quarter, to 75.3% in June to August 2026, compared with the previous quarter.  The UK unemployment rate decreased by 0.1% on the year and on the quarter, to 4.7%.  The latest figures provide some cautious encouragement, suggesting that the labour market is proving capable of withstanding broader economic headwinds.

However, beneath the headline figures, there are signs that employer confidence and hiring appetite are not moving in lockstep.  The estimated number of vacancies in the UK decreased in the latest quarter.  Early estimates for July to September 2026 suggest a decrease of 21,000 to 691,000, compared with April to June 2026.  The continued easing in vacancies may reflect a degree of caution among employers as they navigate one of the most significant periods of employment law reform in recent years.

Annual growth in employees’ average regular earnings was 3.7% in June to August 2026 and has been relatively stable over the past six consecutive three-month periods, after a year of slowing growth.  After a year of moderation, earnings growth now appears to be finding a new equilibrium, providing a clearer backdrop for pay and reward decisions.  For employers, predictability on wages is likely to be welcomed after several years in which workforce costs have been anything but predictable.

While the outlook for UK growth has improved, employers are unlikely to feel that the pressure is off. Rising energy costs are expected to continue weighing on business costs, while the Employment Rights Act 2025 is already reshaping workforce planning decisions. With enhanced unfair dismissal protection due to take effect from 1 January 2027, reducing the qualifying period from two years to six months and removing the compensation cap, employers are placing greater emphasis on getting recruitment decisions right first time.  The result is a growing focus on hiring fewer people, but hiring the right people. As the cost and risk of a poor recruitment decision increases, robust recruitment processes, effective onboarding and well-managed probationary periods are becoming business-critical rather than simply HR best practice.”