UK Labour Market Shows Signs of Cooling as Wage Growth Slows and Redundancies Rise

Published: 16 September ‘2025. The English Chronicle Desk

The UK’s labour market is showing clear signs of cooling, according to the latest official figures, with wage growth slowing and redundancies beginning to rise amid broader economic pressures. Data from the Office for National Statistics (ONS) revealed that annual growth in regular earnings, excluding bonuses, eased to 4.8% in the three months to July, down from 5% in the preceding quarter, closely aligning with City economists’ forecasts.

The official unemployment rate remained unchanged at 4.7% in July, the highest level recorded in four years, edging up from 4.6% in the previous quarter. This stagnation in employment comes against a backdrop of falling job vacancies, a slowdown in hiring, and rising claims for unemployment-related benefits. ONS Director of Economic Statistics Liz McKeown noted, “The labour market continues to cool, with the number of people on payroll falling again, while firms also reported fewer jobs in the latest period. Wage growth excluding bonuses edged down further in cash terms, though it remains strong by historic standards.”

Despite the slowdown, average earnings including bonuses, which are used to calculate the state pension triple lock, rose by 4.7% in the three months to July. Analysts predict this will translate into a substantial increase for pensioners. Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, estimated that the full new state pension would rise from £230.25 per week to £241.05 from April next year, while the basic state pension would increase from £176.45 to £184.75 weekly, though the government has yet to confirm these figures. Labour has reiterated its commitment to maintaining the triple lock, which guarantees annual increases in line with whichever is higher: inflation, 2.5%, or average earnings growth.

The figures arrive as Chancellor Rachel Reeves faces mounting pressure to stimulate growth ahead of her 26 November budget. Critics have warned that the government’s economic policies, including a £25 billion rise in employer national insurance contributions and a 6.7% increase in the national living wage, risk forcing businesses to cut jobs and pass costs on to consumers.

While the ONS labour force survey—long criticised for declining response rates—forms the basis of these statistics, HM Revenue & Customs data corroborates the cooling trend. HMRC figures show a decline of 8,000 workers on company payrolls in the latest period, with the early estimate indicating 127,000 fewer payrolled employees compared with a year earlier. Suren Thiru, economic director at the Institute of Chartered Accountants in England and Wales, highlighted the dual pressures weighing on the labour market: “These figures suggest that the UK’s jobs market is wilting under the weight of a stagnating economy and skyrocketing staffing costs as more businesses aim to shrink their workforce in response to these twin headwinds. While the pace at which pay growth is slowing remains painfully pedestrian, its current downward trajectory should gather momentum over the autumn as the financial squeeze on businesses takes its toll on pay awards.”

Adjusted for inflation, annual growth in regular pay fell to 1.2% in the three months to July, down from 1.5%. The weakening labour market comes as the Bank of England faces a delicate balancing act. Strong wage growth has historically driven inflationary pressures, but a slowdown in hiring and earnings could signal broader economic deterioration, potentially supporting future interest rate cuts. The central bank is widely expected to keep the base rate at 4% at its upcoming policy meeting, with markets anticipating that reductions may not materialise until April 2026.

Opposition figures have warned of the social consequences of Labour’s economic strategy. Daisy Cooper, Liberal Democrat Treasury spokesperson, described current policies as “self-sabotage,” arguing that rising unemployment puts further pressure on already stretched public services and challenges businesses’ ability to operate efficiently.

Official inflation figures due later this week are expected to show the headline rate holding steady at 3.8% in August, nearly double the Bank of England’s 2% target. The combination of slower wage growth, rising redundancies, and persistent inflation highlights the complex pressures facing the UK economy as policymakers prepare for the autumn budget.