Jessica O'ConnorNew figures from the Office for National Statistics (ONS) indicated a cooling UK labour market, recording declines in payrolled employment and vacancies alongside modest wage growth.
Estimates based on HMRC data revealed the number of payrolled employees fell by 74,000 (0.2%) between February 2025 and February 2026, with a further monthly decrease of 6,000 between January and February 2026.
Early estimates for March 2026 revealed that payroll employment declined by 65,000 (0.2%) year-on-year and by 11,000 on the month, bringing the total to 30.3 million, although these figures remain provisional.
Across the comparable December 2025 to February 2026 period, payrolled employment dropped by 87,000 (0.3%) over the year and by 9,000 over the quarter, pointing to a gradual weakening in workforce numbers.
Labour Force Survey data showed the UK employment rate for people aged 16 to 64 stood at 75.0%, slightly down on the quarter but broadly unchanged year-on-year.
The unemployment rate was estimated at 4.9%, falling in the latest quarter but remaining higher than a year earlier.
Economic inactivity rose to 21.0% over the same period, increasing on the quarter but still below last year’s level.
The number of job vacancies also continued to decline, falling by 29,000 (3.9%) to 711,000 in the January to March 2026 period compared with the previous quarter.
This marked the lowest level of vacancies since early 2021.
Meanwhile, the Claimant Count for March 2026 rose on the month but fell on the year to 1.694 million, though this figure remains provisional and subject to revision.
Wage growth remained positive but continues to moderate.
Annual growth in average earnings was 3.6% for regular pay and 3.8% for total pay in the three months to February 2026.
Public sector pay growth outpaced the private sector at 5.2% compared with 3.2%, although this has been influenced by earlier pay settlements in 2025.
In real terms, adjusted for inflation, earnings growth remained modest, with increases of between 0.2% and 0.7% depending on the measure used.
This indicated that while wages are rising, gains in purchasing power remain limited.
The data also showed 39,000 working days were lost to labour disputes in February.
Reaction:
Kevin Fitzgerald, UK managing director at Employment Hero:
“Today’s ONS figures point to a labour market that is still active, but increasingly uneven beneath the headline numbers. Our March data shows year-on-year employment growth in UK SMEs rose to 5.3%, up from 4.9% in February, which suggests smaller businesses are still hiring despite a difficult backdrop.
“But that growth is not being felt evenly. Full-time employment rose 1.1% month-on-month in March, while part-time roles fell by -0.5% for the third month in a row.
“Part-time work remains a key route into employment for many older workers yet our data shows that part-time Boomer employment fell by -6.2% in March alone. This points to a labour market that is becoming more selective about the kinds of roles being created.
“At the same time, wage growth remains elevated at 8.8% year-on-year, even as monthly wages dipped by -1.1%. That tells us SMEs are still competing hard for talent, but under growing pressure from higher costs and a more complex operating environment. The resilience is there, but so is the strain.”
Georgina Huntley, people and culture director at ManpowerGroup:
“Today’s ONS labour market figures reinforce that caution remains the watchword. While there has been a shift in unemployment to 4.9% and vacancies down 3.9%, the UK labour market remains in a wait-and-see holding pattern due to the geopolitical landscape.
“Wage growth at 3.6% for regular pay and 3.8% for total pay, highlights caution from employers. On the face of it, the market looks relatively stable, yet this is driven by hesitancy, rather than increasing confidence. Hidden behind the figures is an ongoing sense of uncertainty and fragility.
“This hesitancy is creating a labour market on the brink, where businesses and their workforce are failing to future proof for success. This is a particular problem for young people – the workforce of the future and the skills gap solution.
“Jobs are changing faster than formal education and training systems can keep pace. Meanwhile emerging routes into employment, where people learn vital early work skills, are disappearing.
“This is not simply a youth issue; it is a business risk. When skills gaps are structural and long-term, reducing investment and time in training, entry careers and softs skills does not remove the challenge – it delays and concentrates it, making the issue harder to resolve when a more certain economic and geopolitical landscape returns.
“It is therefore vital that in this uncertain market employers don’t stand still, instead they should continue to build an adaptable, future-focused workforce.”
George Holmes, managing director of business finance specialists Aurora Capital:
“Slower wage growth and a pullback in hiring are early signs that businesses are starting to scale back. For many SMEs, this is not a sudden shift; it is a response to months of rising costs and less predictable demand.
“Hiring is often the first thing to change. When confidence dips, businesses hold off on hiring new staff and focus on protecting cash flow. That is a practical decision, but when it happens across the board, it starts to feed into a wider slowdown.
“At the same time, costs have not really come down. Wage growth may be easing, but overall costs remain high, which keeps pressure on margins and limits how much businesses can absorb.
“The risk from here is that this becomes a pattern. Businesses stay cautious, hiring remains subdued, and growth becomes harder to build. In that environment, staying in control of cash flow and making sure any finance in place supports the business, rather than adding pressure, becomes critical.”
