UK Employers Tighten Pursestrings as Hiring Slows and Bonuses Shrink
Key Takeaways:
- Vacancies hit a four-year low – Job openings fell 5.8% to 718,000 between May and July, marking declines in nearly every major industry as employers pause recruitment or avoid replacing staff who leave.
- Costs driving cautious hiring – April’s minimum wage hike and higher employer National Insurance contributions have pushed many businesses, especially in hospitality and retail, to favour experienced hires over training new workers.
- Gradual slowdown, not a collapse – Unemployment remains steady at 4.7%, redundancy levels are low, and wage growth is still at 5%, suggesting the labour market is cooling slowly rather than entering a sharp downturn.
The UK labour market is showing clear signs of cooling, with job vacancies falling to their lowest point in over four years and payroll numbers edging down, according to the latest figures from the Office for National Statistics (ONS).
Between May and July, the number of job openings fell by 5.8% to 718,000, marking declines in nearly every major industry. The ONS data suggests that many businesses are either pausing recruitment entirely or choosing not to replace employees who leave.
While the slowdown is evident, economists note that the downturn is gentler than expected. Average wage growth remained at 5%, the unemployment rate held steady at 4.7%, and the estimated drop in the number of people on payrolls — down by 8,000 between June and July — points to what some analysts describe as a “very gradual cooling” rather than a sudden contraction.
Former Bank of England policymaker Andrew Sentence stressed that, despite these recent declines, the scale of employment in the UK remains substantial, with more than 30 million people still on employer payrolls.
Data Quality Concerns and the Cautionary Note
The ONS has cautioned against overinterpreting payroll data, acknowledging concerns about its accuracy and announcing steps to improve data quality. Variations in payroll estimates can result from changes in reporting methods, data collection timing, and revisions made once more complete information becomes available.
Ashley Webb, UK economist at Capital Economics, suggested that the “modest fall” in payroll numbers may indicate that the job market is starting to stabilise after recent pressures from tax rises and wage increases.
April’s Cost Pressures: Taxes and Minimum Wage
In April 2025, UK employers faced a double hit:
- The National Living Wage rose from £11.44 to £12.21 per hour.
- Employer National Insurance Contributions (NICs) increased from 13.5% to 15%, and the salary threshold triggering NIC payments was reduced from £9,100 to £5,000 per year.
These changes increased payroll costs across all sectors, but especially in hospitality and retail, where margins are thin and wages make up a large proportion of total expenses. For many employers, especially small businesses, these added costs have forced a rethink of staffing strategies, often leading to hiring freezes or a preference for experienced staff who require less training.
Vacancies at Their Lowest Since Pandemic Restrictions
The 718,000 vacancies recorded from May to July mark the lowest level since the three months to April 2021 — a period still heavily affected by COVID-19 restrictions.
Outside of the pandemic, vacancies have not been this low since the start of 2015. This drop comes after a sharp rebound post-lockdown, when vacancies hit an unprecedented 1.3 million in mid-2022 due to the reopening economy and labour shortages.
Liz McKeown, director of economic statistics at the ONS, noted that 10 of the last 12 months have seen falls in payroll employment, with the most significant declines in hospitality and retail — industries particularly sensitive to changes in consumer spending and seasonal patterns.
Hiring Trends: Experience Over Youth
One sector feeling the pressure is hospitality. Louise Maclean, business development director at Signature Group, a Scottish hospitality company, told BBC Radio 4’s Today programme that rising employment costs have forced businesses to be more strategic with hiring.
Previously, employers might have been willing to hire younger workers with little experience, investing in their training. Now, however, Ms Maclean says there is a preference for older, experienced staff who can “hit the ground running” and deliver immediate productivity.
“Unfortunately, younger people are less attractive without experience at the moment,” she explained, adding that businesses must ensure that every paid hour delivers profitability, often by streamlining service and improving efficiency.
Political Reactions: Optimism vs. Criticism
The government and opposition have offered sharply contrasting interpretations of the figures.
Chancellor Rachel Reeves welcomed what she called “some really positive news” in the labour market data, pointing to the stability in unemployment and wages despite economic headwinds. However, she acknowledged that more must be done to lower the unemployment rate, which is currently at a four-year high for the April-to-June period.
“Everybody who can work should be in work,” Reeves said. “As a government, we’re committed to helping more people back to work.”
On the other side, shadow work and pensions secretary Helen Whately described the figures as the “predictable outcome of Labour’s war on business”, citing record-high taxes and increased regulation as deterrents to hiring and investment.
Broader Economic Context: Interest Rates, Inflation, and Wages
The slowdown in job vacancies is significant for the Bank of England, which closely monitors the labour market when making decisions on interest rates. Wage growth can fuel inflation, while a cooling jobs market tends to ease price pressures.
The Bank’s inflation target is 2%, but inflation has been creeping up again in recent months, driven largely by higher food and energy costs.
Monica George Michail, associate economist at the National Institute of Economic and Social Research, said the decline in vacancies is likely to contribute to slowing wage growth over the coming months, which could help temper inflation.
She predicted that the Bank will cut interest rates once more this year, lowering borrowing costs from 4% to 3.75% in November. The Bank already reduced rates last week — the first cut in over two years — in an effort to support the economy amid signs of slowing growth.
Sectoral Breakdown: Where the Jobs Are (and Aren’t)
While vacancies are down across most sectors, the largest declines have been in:
- Hospitality and food service — hit by rising labour costs, reduced discretionary spending, and seasonal fluctuations.
- Retail — pressured by weaker consumer confidence and the shift to online shopping.
- Manufacturing — facing reduced demand from both domestic and export markets.
Conversely, some sectors are still showing resilience. Healthcare and social care remain under pressure to fill roles, driven by demographic changes and high turnover. Similarly, certain skilled trades and engineering positions are still in demand, though these markets are smaller in scale compared to retail or hospitality.
Redundancy Risks and Job Security
One bright spot in the latest ONS release is that redundancy notifications remain “relatively subdued”, according to Ashley Webb. This suggests that while employers may be slowing hiring, they are not yet engaging in large-scale layoffs.
However, this cautious approach to recruitment may make it harder for jobseekers — especially those entering the workforce for the first time — to find opportunities.
The Bigger Picture: UK’s Employment Cycle
The UK labour market has been through a turbulent cycle in recent years:
- 2015–2019 – Gradual vacancy growth as the post-financial crisis recovery solidified.
- 2020 – Sharp collapse in vacancies due to COVID-19 lockdowns.
- 2021–2022 – Rapid rebound driven by reopening, staff shortages, and high consumer demand.
- 2023–2024 – Peak vacancy levels begin to ease as inflation and interest rates weigh on economic growth.
- 2025 – A steady cooling phase, with vacancies approaching pre-pandemic norms and hiring patterns adjusting to higher business costs.
Outlook for the Rest of 2025
If the Bank of England delivers another rate cut in November, borrowing costs for businesses and households will ease slightly. This could help stimulate hiring in sectors like construction, manufacturing, and professional services.
However, much depends on whether inflation continues to trend down. If price pressures remain stubborn, the Bank may take a more cautious approach, leaving employers with higher financing and wage costs for longer.
Economists expect that the pace of the labour market slowdown will continue to be gradual rather than abrupt. For workers, this means the risk of job loss remains low for now, but opportunities for job-switching or securing large pay rises may be more limited.
Conclusion: A Market in Adjustment, Not in Crisis
The latest ONS figures confirm that the UK jobs market is no longer running at the breakneck pace of the post-pandemic recovery. Vacancies have returned to levels not seen since before COVID-19, and hiring patterns are shifting in response to higher wage floors and increased taxes.
Still, the data points to stability rather than collapse. Unemployment is steady, redundancy levels are subdued, and most sectors are maintaining core staffing levels. The challenge ahead will be balancing fair wages with business competitiveness, ensuring that cost pressures do not choke off employment opportunities — particularly for young and inexperienced workers.
For now, the UK’s labour market story is one of adaptation, with employers, workers, and policymakers all navigating a slower, but still fundamentally healthy, employment environment.
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