UK Jobs Market Cools as Wage Growth Slows and Payrolls Fall

Rachel Reeves has acknowledged there is “more to do” on employment after fresh data revealed a slowdown in wage growth and a drop in payroll numbers in the latest quarter. The figures offer clear evidence of a cooling labour market which comes in the wake of the chancellor’s national insurance hike and a sharp rise in the national living wage.

Average weekly earnings, including bonuses, grew by 4.6 per cent in the second quarter of the year, down from 5 per cent in the previous three months. According to the Office for National Statistics, private sector pay increases softened to 4.8 per cent, falling short of the Bank of England’s 5.2 per cent forecast and marking the weakest rate since January 2022.

Payroll employment has suffered, hitting its lowest point since October 2023. The number of people on payrolls decreased by 164000 compared with the same time last year, resulting in a total of 30.3 million. Job vacancies also continued their downward trend, falling for the thirty seventh month in succession to 718000 between May and July, a drop of 44000 on the previous quarter.

The contraction in employment has been concentrated in lower paid sectors such as retail hospitality and leisure. These industries are experiencing rising wage costs following higher national insurance contributions and the increase in the national living wage introduced from April. Over 80 per cent of job losses since October have occurred in these areas according to the Resolution Foundation, which described the NICs rise as a “mini shock” to the jobs market.

Hannah Slaughter, a senior economist at the think tank, remarked that the impact on low paid sectors highlights the need for a cautious approach to setting the minimum wage in the coming year. Meanwhile, Kate Shoesmith, deputy chief executive at the Recruitment and Employment Confederation, has called for pragmatism from the Low Pay Commission, warning that businesses cannot withstand further cost increases at this time.

The ONS reports the UK’s economic inactivity rate has stayed at a five year low of 21 per cent while the unemployment rate remains at a four year high of 4.7 per cent. The Bank of England anticipates unemployment will peak at 4.9 per cent during the next 12 months. Persistent declines in vacancies, especially across hospitality and retail, reflect firms opting not to recruit or replace staff. The continued fall in payrolls and opportunities signals a labour market that remains under pressure.