The UK labour market is continuing to soften, with new data from the Office for National Statistics (ONS) showing a rise in unemployment and a slowdown in pay growth. The unemployment rate has increased to 4.7 percent, the highest level in four years, while pay growth eased to 5 percent in the three months to May 2025.
Job vacancies have also declined again, marking three years of continuous drops. The latest figures indicate 727,000 vacancies between April and June 2025, down by 56,000 on the previous quarter. The number of unemployed people per vacancy has now reached levels last seen in early 2016, excluding the pandemic.
The is prompting further speculation that the Bank of England could cut interest rates next month. Analysts have pointed to the sustained labour market cooling as a potential trigger for monetary easing to support the wider economy.
Impact on jobseekers and young workers
James Cockett, senior labour market economist at the CIPD, said the labour market is now showing clear signs of slack.
“The labour market is cooling off, reducing recruitment pressures on employers,” he said. “Outside of the pandemic, vacancies have fallen to their lowest level since 2015.”
Cockett warned that the slowdown is making job searching harder for candidates. “It’s becoming a harder jobs market for candidates with the number of unemployed per vacancy reaching levels last seen in early 2016,” he said. He also noted that pay growth remains high by historic standards, but inflationary pressures continue to affect employers.
“The immediate effect of national insurance increases is less muted than previously thought,” he said, adding that “the number of payrolled employees has fallen in all but one month since the changes were announced last October.”
Cockett also raised concerns about falling employment among young people. “It’s vital that young people aren’t left behind and are given every opportunity to get into work at the outset of their working lives,” he said. “We are calling on the Government to introduce an apprenticeship guarantee for all 16 to 24-year-olds.”
Calls for quality employment and long-term reform
Ben Harrison, Director of the Work Foundation at Lancaster University, said the data shows a challenging transition in the labour market. “More employers are holding back from hiring, the pace of pay growth is easing but the number of people beginning to look for work is on the rise,” he said.
“There are now 2.3 people seeking work per vacancy available in the most challenging labour market in recent years,” Harrison said. He also noted the fall in economic inactivity, now at 21 percent, down by 375,000 people over the past year. Still, he warned this could lead to increased hardship.
“There is a significant risk they will struggle to access secure and well-paid work,” he said. “Wages are just £26 a week higher in real terms than they were at the start of the global financial crisis in August 2008.”
He urged the Government to prioritise job quality and investment. “It’s vital that alongside an extra £1 billion for additional employment support programmes, the Government sticks to its guns on the Employment Rights Bill and puts the creation of high quality jobs at the heart of its Industrial Strategy.”
Recruitment sector urges flexibility and support
Neil Carberry, Chief Executive of the Recruitment and Employment Confederation (REC), said the trend across the market shows weakening but also some resilience.
“While the overall levels of employment and unemployment remain reasonably steady, the trend is one of clear weakening across most measures,” he said. “Many firms are choosing to operate leaner in response to the current situation.”
Carberry noted that temporary work in the private sector is performing better than other forms of hiring. “Firms seek flexibility,” he said. He also emphasised the importance of government action. “We should not let pessimism take hold – our data shows businesses are confident in their own plans,” he said. “A reduction in the interest rate next month will help… but so will reassuring firms that they don’t face another swingeing tax raid in the Budget.”
“Fixing the impracticalities in the Employment Rights Bill – a piece of legislation that is not yet suited to the modern workplace – is key,” he said. “The focus should move to ensure businesses have the flexibility and support to tap into a growing talent pool and keep it sustainable.”
