UK Labour Market Shows Gradual Cooling
The latest figures from the Office for National Statistics (ONS) indicate that the UK labour market is continuing to ease, although the slowdown remains measured rather than abrupt.
Vacancies fell by 5.8% to 718,000 in the three months to July 2025, the lowest level since April 2021 when the economy was still affected by the Covid-19 pandemic. Outside of the pandemic period, vacancy numbers have not been this low since early 2015. The fall was broad-based across sectors, with hospitality and retail seeing the largest reductions.
Payroll data showed 8,000 fewer people in employment between June and July. However, the unemployment rate remained unchanged at 4.7% and redundancy notifications in July were relatively subdued, suggesting a gradual cooling rather than a sharp deterioration.
Former Bank of England policymaker Andrew Sentence noted that with more than 30 million people currently on payrolls, recent changes represent a modest proportion of the workforce. Ashley Webb, UK economist at Capital Economics, suggested that the modest fall in payrolls indicates that the impact of recent increases in employers’ national insurance and the minimum wage is beginning to settle.
Political reactions to the data were divided. Chancellor Rachel Reeves described elements of the figures as positive but acknowledged the need to further reduce unemployment, which remains at a four-year high. Opposition parties criticised the government’s approach, citing higher taxes and increased regulation as barriers to job creation.
Looking ahead, analysts suggest that the decline in vacancies could contribute to slower wage growth, currently steady at 5%. This is one of the indicators the Bank of England considers as it assesses inflationary pressures when setting the Bank’s base rate. Therefore, wage growth slowing could lead to further interest rate cuts.
In summary, the data suggests that there’s a measured cooling of the labour market, with employers showing greater caution in recruitment.
A national expansion of WorkWell, a health-and-employment support service, is set to take place across England, following a successful pilot that helped more than 25,000 people stay in or return to work.
Small Business Britain is set to roll out its Small and Mighty Enterprise Programme, a six-week online course designed to help sole traders and micro businesses unlock growth opportunities.