UK Labour Market Shows Signs of Stabilising After Job Losses

Published: 14 October 2025. The English Chronicle Desk. The English Chronicle Online.

Britain’s labour market is showing signs of stabilising after a sharp rise in job losses earlier this year, amid concerns over tax increases introduced by Chancellor Rachel Reeves. Recent figures from the Office for National Statistics (ONS) suggest that the worst of the slowdown in hiring may be passing, although economists warn that the market remains fragile and sensitive to further economic pressures.

The unemployment rate rose slightly to 4.8% in the three months to August, up from 4.7% in July, according to the ONS. City economists had expected the rate to remain unchanged, highlighting the surprising resilience of the jobs market despite earlier declines. The figures reflect a modest increase in the number of people actively seeking work, while overall payrolls showed only minor movement.

Separate data from HM Revenue and Customs (HMRC) indicated that the number of workers on company payrolls fell by 10,000 in September. While this represents a small reduction in a workforce of more than 30 million, analysts emphasised that the slowdown is showing signs of stabilisation after steeper falls in the earlier months of the year. These declines had been widely attributed to the tax rises announced by Reeves last year, which were implemented in April and included higher employer national insurance contributions alongside increases in the national living wage.

Liz McKeown, ONS director of economic statistics, said: “After a long period of weak hiring activity, there are signs that the falls we have seen in both payroll numbers and vacancies are now levelling off. While challenges remain, the data suggests the labour market is finding a degree of stability.”

The ONS also revised the payroll figures for August, changing a reported decline of 8,000 to an increase of 10,000, highlighting little net change in the overall size of the workforce. Job vacancies fell by 9,000 in the three months to September, standing at 717,000—the second smallest decline since mid-2022. Analysts interpret this as a sign that demand for labour, while reduced from earlier highs, is stabilising rather than continuing to deteriorate sharply.

Average weekly earnings, excluding bonuses, grew by 4.7% annually in the three months to August, down slightly from 4.8% in the previous period, broadly in line with City forecasts. The ONS noted that wage growth in the private sector slowed to its lowest rate in nearly four years, while public sector pay rose, reflecting some pay awards being brought forward compared with the previous year. On an annual basis, growth was 6% for the public sector and 4.4% for private employees. Overall pay growth, taking both sectors together, rose from a revised 4.8% to 5%, demonstrating resilience in earnings despite a softening employment market.

Martin Beck, chief economist at consultancy WPI Strategy, said: “April’s rise in employer national insurance contributions and the sharp hike in the national living wage have clearly weighed on hiring. However, figures over the summer suggest the worst of the damage is passing. Even so, the jobs market remains more fragile than at any time in recent years.”

The ONS’s labour force survey, which forms the basis of its unemployment figures, has faced criticism in recent years due to declining response rates. Experts warn that this may leave policymakers “flying blind” and risk decisions being taken based on flawed or incomplete data. Nonetheless, the survey continues to provide the most comprehensive official snapshot of employment trends, tracking patterns in hiring, vacancies, and wages across sectors.

As Chancellor Reeves prepares for the 26 November budget, attention is increasingly focused on the balance between raising revenue and supporting economic growth. Business leaders have expressed concern that a weaker employment outlook may limit the government’s capacity to introduce additional taxes without harming the economy. The Institute of Directors, among other groups, has called for a “change of policy direction” to stimulate growth and support job creation. Alex Hall-Chen, the principal policy adviser for employment at the organisation, said: “A targeted approach is needed if the government is to meet its objectives of stimulating growth while enabling businesses to create jobs. Raising taxes in a fragile labour market could risk undermining the progress that is being made.”

Work and Pensions Secretary Pat McFadden stressed that while the latest figures show record numbers of people are in employment or actively seeking work, challenges remain. “There are still too many people locked out of employment or training and missing out on the security a good job provides,” he said, highlighting the importance of continuing policy interventions to support those who remain underemployed or economically inactive.

The performance of wages has implications beyond household finances. Strong wage growth has contributed to inflationary pressures, complicating the Bank of England’s monetary policy. The central bank has reduced interest rates four times over the past year, but the persistence of wage increases has constrained the pace of further cuts. Threadneedle Street kept rates on hold at 4% last month, citing concerns over inflation despite the slowdown in the labour market and broader economic weakness.

Ashley Webb, UK economist at Capital Economics, said the data suggest that while the labour market is gradually loosening, wage growth remains relatively robust. “This combination indicates the Bank of England will likely remain more concerned about upside risks to inflation rather than downside risks to activity,” she noted. He added that while slower hiring could signal a weakening economy, it has not yet led to a sharp deterioration that would prompt immediate monetary easing.

Analysts are also closely watching how different sectors are responding to the ongoing pressures. The private sector has experienced a noticeable slowdown in hiring, reflecting both cost pressures and uncertainty over future demand, while the public sector has maintained stronger pay growth and relatively stable employment. The divergence highlights the challenge of balancing fiscal restraint with the need to maintain economic activity and protect vulnerable groups.

Overall, the latest figures point to a labour market that is stabilising after a turbulent period, with modest rises in unemployment and minor declines in payrolls offset by resilient wage growth. While challenges remain, including the potential impact of further tax measures and ongoing inflationary pressures, experts suggest that the economy has so far weathered the initial shocks.

As Reeves prepares to unveil her budget next month, the government faces the delicate task of stimulating growth, maintaining employment, and managing inflation. The labour market’s current trajectory suggests that while the worst of the recent slowdown may have passed, careful policy measures will be essential to ensure sustained recovery and support for workers across all sectors.