The UK labour market workforce continued to show signs of cooling in the three months to June, with wage growth easing, vacancies falling, and payroll numbers declining, according to the latest figures from the Office for National Statistics (ONS).
Average workers weekly earnings, including bonuses, rose by 4.6% in the second quarter, down from 5% in the previous three-month period and falling slightly short of economists’ forecasts. Pay in the private sector increased by 4.8% – the slowest pace since January 2022 – undershooting the Bank of England’s 5.2% projection. When bonuses are excluded, earnings growth remained at 5%, unchanged from the prior quarter.
The slowdown comes against the backdrop of increased business costs, driven by the April rise in the National Living Wage and higher Employer National Insurance Contributions. Industries such as retail, leisure, and hospitality have been among the most vocal about the challenges of maintaining hiring levels in this environment.
According to the ONS, payroll employment fell by 8,000 in July – a smaller drop than the 18,000 anticipated – while June’s decline was revised from 41,000 to 26,000. The unemployment rate held steady at 4.7%, the highest level in four years, with the Bank of England expecting it to peak at 4.9% over the next 12 months.
Vacancy levels continued their downward trend, dropping by 44,000 to 718,000 – marking the 37th consecutive monthly decline. The ONS noted that “some firms may not be recruiting new workers or replacing workers who have quit,” with the most significant falls concentrated in hospitality and retail.
Liz McKeown, director of economic statistics at the ONS, stated that the figures “point to a continued cooling of the labour market,” adding that payroll reductions were most visible in customer-facing sectors.
Commenting on the figures, Isaac Stell, investment manager at Wealth Club, warned that the slowdown reflected “growing signs of economic strain and an absence of momentum,” with slower wage growth signalling “weakening employer confidence and reduced capacity to offer competitive compensation.” He cautioned that this could place further pressure on household spending power in the months ahead.
Alex Hall-Chen, principal policy advisor for employment at the Institute of Directors, said that “policies which are increasing the cost and risk of employing staff” are suppressing labour demand. He cited rising employer National Insurance, changes to employment law, and above-inflation increases in the minimum wage as key factors “substantially weakening the business case for hiring.” Hall-Chen urged the government to restore hiring confidence by tackling employment costs and supporting proposed amendments to the Employment Rights Bill – including reducing the qualifying period for unfair dismissal from day one to six months, and reinstating the 50% voting threshold for industrial action.
The data follows last week’s narrow vote by the Bank of England’s Monetary Policy Committee to cut interest rates to 4%. Policymakers also warned that inflation, currently at 2% – above the target rate – is expected to rise to 4% later this year, driven by food and energy price pressures.
The figures underline a challenging period for both employers and employees as economic headwinds, policy changes, and cost pressures converge to reshape the hiring landscape. Monitoring future ONS releases will be essential in understanding whether this cooling trend continues into the second half of the year.
