DWF comments on UK labour market and Employment Rights Bill

Joanne Frew, Global Head of Employment & Pensions at DWF, has provided insights on the latest UK labour market statistics.

As the Employment Rights Bill enters its final stages of Parliamentary scrutiny before becoming law, the labour market remains cautious in anticipation of the forthcoming changes. The UK employment rate was estimated at 74.9% in August to October 2025. This is down in the latest quarter, but largely unchanged in comparison to last year. The UK unemployment rate was estimated at 5.1% in the same period. This is up in the latest quarter and above estimates of a year ago. The latest figures reflect the strain on employers in the current landscape.

The estimated number of vacancies in the UK are broadly unchanged on the quarter, early estimates suggest a small decrease of just 2000 vacancies to 729,000 in September to November 2025. We are seeing a cooling across the labour market with hiring reluctance persisting as employers face mounting financial pressures and expanded employee rights.

Annual growth in employee’s average earnings in Great Britain for regular earnings was 4.6% and for total earnings was 4.7% in August to October 2025. Annual average regular earnings growth was 3.9% for the private sector and 7.6% for the public sector. The stark contrast between public sector and private sector growth is significant, however it is important to note that the public sector growth is affected by some pay rises being paid earlier in 2025 rather than in 2024. Employers face the challenge of controlling escalating costs alongside demands for pay rises, all against a backdrop of ongoing industrial action risk.

With Royal Assent expected on the Employment Rights Bill imminently, employers are watching developments closely. The reversal on making unfair dismissal a day-one right, replaced by a six-month qualifying period, may ease recruitment concerns slightly. However, the removal of the compensatory cap for unfair dismissal introduces a significant new risk, as the potential cost of dismissals has increased substantially. All eyes are now on the House of Lords today for the latest position on the cap.