DWF comments on UK labour market

The UK labour market is facing increasing ongoing economic pressure with the latest figures showing a resilient but nuanced picture.  On the positive side, the UK employment rate was estimated at 75.2% in March to May 2025.  This is above estimates of a year ago, and up in the latest quarter.  The UK unemployment rate for the same period was estimated at 4.7%, above estimates of a year ago, and down in the latest quarter.

However, the estimated number of vacancies in the UK fell by 56,000 on the quarter, to 727,000, in April to June 2025 – the 36th consecutive fall.  Few sectors are untouched by the decline, with vacancies decreasing in 14 of the 18 industry categories.   UK businesses are scaling back recruitment and choosing not to replace departing staff, leading to a sharp drop in job vacancies, according to the official data.  This trend is perhaps unsurprising with the raft of new employment protections on the horizon leading employers to taking a cautious approach to recruitment.

In March to May 2025, annual growth in employees’ average earnings in Great Britain for both regular earnings (excluding bonuses) and total earnings (including bonuses) was 5%.  Annual average regular earnings growth was 5.5% for the public sector and 4.9% for the private sector.  This shows that, with the rise in employer National Insurance contributions, wage growth has begun to level off as businesses look to manage costs.  When viewed alongside the reduced number of job vacancies, this suggests a level of concern amongst employers who also face a further challenge – the ONS has reported that the UK’s inflation rate has risen to 3.6% in the year to June, an increase from 3.4% in May.  This unexpected increase in inflation will put pressure on employers to raise pay as employees’ purchasing power drops.

With the cost of living crisis biting, employers will need to find new and innovative ways to help support their staff and inspire loyalty in a volatile market.  Building a positive culture, engaging employees, and communicating transparently are key to staying competitive.