Employment declines amid economic headwinds
Britain’s labour market is showing signs of strain, with new data revealing rising job losses, a drop in hiring, and inflation once again eroding real wages. Figures for July showed an 8,000 fall in the number of employees on company payrolls, contributing to a total decline of 164,000 since the general election last year. The unemployment rate held at 4.7% in the three months to June, the highest since 2021 and above the 4.2% rate seen a year ago.
Economists attribute the deterioration to a weak economic outlook and the £25 billion rise in employer national insurance contributions (NICs) announced by Chancellor Rachel Reeves in her first autumn budget, which took effect in April. Job losses have been concentrated in retail and hospitality, sectors vulnerable to higher employment costs due to their reliance on part-time and seasonal contracts.
Hiring slows as inflation returns
Recruitment intentions have fallen to record lows as companies grapple with uncertainty linked to Donald Trump’s trade war, subdued consumer spending, persistent inflation, and elevated interest rates. The Bank of England cut its base rate to 4% last week but warned that rekindled inflationary pressures—expected to peak again at 4% in September—could delay further easing.
Although average earnings growth has been unexpectedly resilient, the Bank expects pay growth to slow to around 3.75% by year-end, potentially falling below inflation and squeezing household incomes further.
Slowdown not collapse
Despite the downturn, economists note that redundancy notifications remain relatively subdued, suggesting a gradual cooling rather than a sharp collapse. While the NICs increase has clearly impacted employers, the most severe phase of adjustment may be over.
For policymakers, the measured pace of labour market weakening justifies a cautious approach to future rate cuts. For the chancellor, it highlights the need for a carefully calibrated autumn budget to support workers without deepening the slowdown.
