Jessica O'ConnorThe latest labour market data from the Office for National Statistics (ONS) revealed a broad weakening in UK employment, accompanied by ongoing pay growth and a sustained fall in job vacancies.
Between May 2024 and May 2025, the number of payrolled employees in the UK fell by 135,000, marking a decline of 0.4%.
The drop was also evident on a monthly basis, with 25,000 fewer payrolled employees between April and May 2025 – a fall of 0.1%.
When considering the three-month period from March to May 2025, which aligns with the Labour Force Survey (LFS) reporting window, payrolled employees decreased by 81,000 compared to the same period the previous year, and by 68,000 over the quarter.
Early estimates for June 2025 indicated a further fall in payrolled employment, down by 178,000 over the year and by 41,000 on the month.
This brings the provisional total number of payrolled employees to 30.3 million. However, the ONS notes that this June estimate is subject to revision as more complete data becomes available.
The Labour Force Survey data, now considered more reliable following improvements in data collection and sampling from January 2024, showed the UK employment rate for people aged 16 to 64 at 75.2% during March to May 2025.
This represents an increase both over the year and the latest quarter.
The unemployment rate for those aged 16 and over also rose, reaching 4.7%, higher than a year ago and up on the quarter. Meanwhile, the economic inactivity rate for those aged 16 to 64 dropped to 21.0%, marking a decrease both over the year and in the most recent quarter.
Despite the slight recovery in some headline labour market indicators, signs of strain were evident elsewhere.
The number of vacancies in the UK fell by 56,000 between April and June 2025, bringing the total to 727,000.
This marked the 36th consecutive quarterly decline in vacancies.
According to employer feedback gathered through the ONS Vacancy Survey, some firms are refraining from recruiting new staff or replacing those who leave, contributing to this continued fall.
The UK Claimant Count also rose in June 2025, both on a monthly and annual basis, reaching 1.743 million people.
In terms of pay, annual growth in employees’ average earnings for the March to May 2025 period was 5.0% for both regular pay (excluding bonuses) and total pay (including bonuses).
The public sector saw regular pay rise by 5.5%, while the private sector recorded a slightly lower increase of 4.9%.
When adjusted for inflation using the Consumer Prices Index including owner occupiers’ housing costs (CPIH), real terms growth stood at 1.1% for regular pay and 1.0% for total pay. Using the CPI, which excludes housing costs, real pay growth was even stronger – 1.8% for regular pay and 1.7% for total pay.
Industrial action continued to impact the labour market, with an estimated 37,000 working days lost to labour disputes in May 2025.
Reaction:
Hannah Goldstraw, senior recruitment consultant at Barrow Mount Recruitment, said:
“These figures reflect what we’re experiencing on the ground – cautious hiring, fewer roles being created, and more candidates competing for each opportunity.
“The slowing of wage growth adds further pressure, especially for mid-level professionals trying to keep pace with rising costs.
“Employers that remain active in this market need to act decisively to secure the right talent.”
George Holmes, managing director of Aurora Capital:
“The labour market continues to cool at an alarming rate, which can come as no surprise following the rise in National Insurance Contributions and the minimum wage.
“Small businesses simply can’t afford to grow their workforces, and if anything, are actively reducing headcounts.
“Despite these labour figures, the cost of borrowing remains far too high. SMEs aren’t holding back on investment because they want to. They’re being squeezed from all sides.
“Andrew Bailey has hinted at larger cuts if the jobs market weakens, but a token move in August and one more this year won’t be enough.
“April’s tax and wage cost hikes are still hitting balance sheets, and SMEs are already under pressure.
“The Bank must respond decisively. Small firms are expected to fuel the growth the government talks about, but they can’t deliver while finance remains out of reach. Meaningful rate cuts are the bare minimum.”
