UK Jobs Market Shows Clear Signs of Strain as Hiring Slows and Vacancies Shrink

The United Kingdom’s job market is under increasing pressure as fresh data reveals further weakening in both payroll numbers and job vacancies. According to figures released by the Office for National Statistics (ONS), the number of people on company payrolls has declined in recent months, while job openings continue to shrink—painting a cautious picture of the UK’s economic recovery.

Between February and April 2025, the estimated number of job vacancies dropped by 42,000 to 761,000, continuing a downward trend that has persisted for over a year. At the same time, the number of payroll employees fell by 47,000 in March, followed by a further estimated decrease of 33,000 in April.

This slow erosion of labour market strength suggests that UK businesses are adjusting to recent cost pressures, most notably the April hike in employer National Insurance contributions and an increase in the National Living Wage.

A Cooling Labour Market

Liz McKeown, Director of Economic Statistics at the ONS, noted that “the broader picture continues to be of the labour market cooling.” Unemployment has nudged up slightly, with the rate climbing to 4.5% in the January–March quarter, compared to 4.4% previously.

However, the ONS advised caution in interpreting these figures too literally, due to low response rates in the labour force survey, which has made some of the unemployment data less reliable.

Even so, other metrics confirm a softening jobs landscape. Payroll employment, which is generally considered a more stable indicator due to its administrative data source, has shown a steady decrease in recent months.

The Cost of Employment Rises

The employment squeeze comes in the wake of new government policies that took effect in April. The rise in employer National Insurance contributions and the National Living Wage has increased the cost of hiring and retaining workers.

Some businesses had already signalled concerns that the added financial strain could impact their ability to expand their workforce. That concern appears to be materializing.

Ruth Gregory, Deputy Chief UK Economist at Capital Economics, explained: “The further softening in employment in April suggests businesses continued to respond to the rise in business taxes and the minimum wage by reducing headcount.”

This trend is reinforced by a separate survey released this week, showing that the number of employers planning to hire in the next three months has dropped to its lowest level since records began—excluding the exceptional disruption during the pandemic.

Wages Still Outpacing Inflation

Despite the cooling job market, wage growth remains relatively strong. Regular pay (excluding bonuses) grew at an annual rate of 5.6% in the first quarter of the year. That’s a slowdown from previous quarters but still comfortably above the current rate of inflation, offering some reassurance to workers contending with the cost of living.

The persistence of wage growth, however, complicates matters for the Bank of England. While it cut interest rates last week and hinted at more reductions to come, Governor Andrew Bailey emphasized that the Bank would move “gradually and carefully.”

The Bank of England closely monitors wage growth as a key input for inflation forecasts. If wages continue rising too quickly, businesses may pass those costs onto consumers, sparking renewed price pressures. That would, in turn, delay further interest rate cuts.

Gregory warned: “Sticky wage growth may mean the Bank remains uneasy about inflationary pressures in the near term. As a result, the ‘gradual’ interest rate cutting path will remain in the balancing act.”

A Balancing Act for Policymakers

The current landscape leaves policymakers walking a tightrope. On one side, slowing job growth and business hesitancy suggest the economy could benefit from looser monetary policy. On the other, robust wage increases and lingering inflation risks mean the Bank of England must tread cautiously.

Luke Bartholomew, Deputy Chief Economist at fund manager abrdn (formerly Aberdeen Asset Management), echoed this sentiment. “While the labour market continues to slow, and there is some evidence of the impact of the increase in National Insurance... there is nothing to suggest it immediately fell off a cliff in response to the shock.”

This “slow bleed” scenario may actually present the Bank with the most challenging situation. The absence of a sharp downturn means that aggressive rate cuts might not be justified, yet the gradual cooling of the labour market could still dampen economic momentum and erode consumer confidence.

Outlook for Workers and Employers

For workers, the picture is mixed. While unemployment remains relatively low by historical standards and wage growth is holding strong, the tightening job market could mean fewer opportunities and a longer search for those looking to switch roles or re-enter the workforce.

Employers, particularly in sectors reliant on low-margin operations like retail, hospitality, and care services, are feeling the pinch from rising employment costs. Many may choose to scale back hiring or shift to part-time or contract arrangements to manage overheads.

The ONS figures reinforce a reality that’s becoming harder to ignore: the UK jobs market is no longer the stronghold it was a year ago. Whether this represents a temporary adjustment or the beginning of a more prolonged downturn remains to be seen.

In the months ahead, both workers and businesses will be watching not only for the next moves from the Bank of England but also for any signs of new fiscal interventions that could ease the current strain. Until then, a cautious mood is likely to prevail in boardrooms and job centres alike.

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