Economic growth in wages reaches a significant milestone, albeit coinciding with increased job losses
The UK jobs market is currently undergoing a period of moderate pressure due to rising labour costs and potential tax increases, according to recent economic data.
The latest figures from the Office for National Statistics (ONS) show that the UK employment rate for people aged 16 to 64 was 75.3% in April to June 2025, slightly up from the previous year. However, unemployment rose to 4.7% in the same period, higher than a year ago. Economic inactivity declined to 21.0%, indicating more people are engaged in or seeking work[1].
Vacancies fell by 44,000 (5.8%) between May and July 2025, marking the 37th consecutive quarter with a decline in vacancies. Many businesses are holding back from recruiting new employees or replacing leavers, suggesting concern about higher labour costs and economic uncertainty[1][3].
Average regular earnings growth increased by 5.0% annually (4.6% including bonuses) in the latest quarter. Public sector earnings rose faster (5.7%) than private sector (4.8%), indicating wage pressures which contribute to higher labour costs for employers[1].
Despite these challenges, the flash UK PMI in August 2025 showed the fastest economic growth in a year, indicating that businesses are still expanding even with wage and tax-related cost challenges[2]. About 95% of businesses reported trading in late July 2025, though some operated with reduced hours or staffing. A small percentage paused or ceased trading, reflecting ongoing economic pressures including rising costs and tax considerations[3].
The fall in jobs numbers was "concentrated" in hospitality and retail, with the UK economy seeing a fall of 8,000 jobs last month, according to a provisional estimate[4].
Predictions and outlook: While rising labour costs (wage growth above inflation) and potential tax increases strain employer hiring and push some to slow recruitment, the underlying economic growth trend remains positive as of August 2025. However, continued declines in vacancies and cautious business hiring suggest that labour market expansion may moderate, possibly leading to slower job growth or higher unemployment if costs keep rising or tax policies tighten further. Employers may also increase automation or restructure to offset higher employment costs.
Governor Andrew Bailey stated that the future path of interest rates is "more uncertain", while Alan Taylor, a member of the Monetary Policy Committee (MPC), initially backed a bigger 50 basis point cut due to the "risk of a recession". The MPC may experience unrest due to a lackluster jobs market[5].
Economists have highlighted the risks of pay growth remaining elevated due to behavioural factors, and the shadow business secretary Andrew Griffith expressed concerns about red tape in the Employment Rights Bill potentially breaking the "deal" of getting a job after achieving high grades[6]. Treasury officials, including Chancellor Rachel Reeves, are likely to be cautious with Parliament's return from the summer recess.
In summary, the UK jobs market shows signs of moderation in hiring due to rising labour costs and tax-related pressures, but has not yet entered a downturn, supported by ongoing economic growth and resilient business activity[1][2][3]. Industry groups are urging the government not to target businesses if it chooses to raise taxes this autumn[7]. However, the future path of the jobs market remains uncertain, with ongoing concerns about labour costs, tax rises, and economic uncertainty.
[1] Office for National Statistics (ONS) [2] IHS Markit/CIPS Flash UK Composite PMI [3] ICAEW UK SME Recovery Tracker [4] ONS provisional estimate [5] Bank of England (BoE) MPC meeting minutes [6] BBC News [7] The Guardian
