DWF comments on UK labour market

By: Joanne Frew – Global Head of Employment & Pensions | DWF

UK

Current economic conditions and evolving legislative frameworks are placing mounting pressure on the UK labour market.  The UK employment rate was estimated at 75.2% in May to July 2025.  This is up in the latest quarter and above estimates of a year ago.  The UK unemployment rate was estimated at 4.7% in May to July 2025.  This is up in the latest quarter and above estimates of a year ago.

The estimated number of vacancies in the UK fell by 10,000 on the quarter, to 728,000 in June to August 2025 – the 38th consecutive fall.  Nine of the 18 industry sectors saw a fall.  UKHospitality has reported that half of the UK job losses since the last budget have been in the hospitality industry.  It is unsurprising that the industry has felt the brutal impact of slow wage growth and rising prices.

In May to July 2025, annual growth in employees’ average earnings in Great Britain for regular earnings (excluding bonuses) was 4.8%, and for total earnings (including bonuses) was 4.7% in May to July 2025.  We can see a clear distinction between the public and private sector – annual average regular earnings growth was 5.6% for the public sector and 4.7% for the private sector.  Employers are facing continued pressure from employees to raise pay in line with rising prices.

With the Employment Rights Bill progressing through Parliament, there is a nervousness in the labour market, and many employers are approaching recruitment with caution. The proposed reform, ranging from day-one rights for unfair dismissal and flexible working, to stricter rules around zero-hours contracts and fire-and-rehire practices, are prompting concerns about increased costs, reduced flexibility, and heightened administrative burdens.  Having already absorbed the increased costs from the National Insurance changes, employers are reluctant to plan too far ahead until they fully understand the impact of the reforms. While the Bill aims to improve job security and working conditions, its scope and complexity have led some businesses to delay hiring decisions or reconsider workforce structures in anticipation of compliance challenges.  Employers are hoping the Autumn Budget will provide much needed clarity and reassurance amid ongoing economic uncertainty.