The UK labour market has weakened further, with the number of employed people falling for another consecutive month and wage growth in the private sector slowing to its lowest level in half a decade, according to official statistics.
Payrolls Shrink as Hiring Weakens
Fresh data from the Office for National Statistics (ONS) reveals a concerning trend. The number of employees on payrolls fell by 184,000 in December compared to the same month a year earlier, bringing the total to 30.2 million. This decline is not spread evenly across the economy. The reduction has been heavily concentrated in the retail and hospitality sectors, which includes pubs, shops, restaurants, and hotels, reflecting what the ONS describes as "ongoing weak hiring activity."
Liz McKeown, Director of Economic Statistics at the ONS, stated: "The number of employees on payroll has fallen again, with reductions over the last year concentrated in retail and hospitality. Wage growth in the private sector has slowed to its lowest rate in five years."
Wage Growth Cools Amid Broader Slowdown
The figures also show a marked deceleration in earnings growth. Excluding bonuses, wage growth weakened to 4.5% in the three months to the end of November, down from 4.6% in the previous period. When bonuses are included, the rate slipped to 4.7% from 4.8%. This slowdown in private sector pay contrasts with still-elevated public sector wage growth, which is being affected by the timing of some pay awards.
Meanwhile, the headline unemployment rate held steady at 5.1% for the three months to November, in line with economists' expectations. However, the broader picture shows a labour market that has softened significantly over the past year. Unemployment has risen to 1.8 million, and the number of job vacancies has now fallen below the average level seen before the Covid-19 pandemic.
Economic Headwinds and Policy Impacts
Analysts point to several factors contributing to the cautious stance of employers. The policy environment has created uncertainty, with Chancellor Rachel Reeves announcing £26bn in tax-raising measures ahead of the Autumn Budget. Recent increases in employers' national insurance contributions and the minimum wage have made businesses more reluctant to retain and hire new staff.
External global factors are also at play. The so-called "liberation day" tariffs imposed by former US President Donald Trump last April added to international economic uncertainty, dampening investment appetites among large corporations. Furthermore, while the artificial intelligence boom has created jobs in the tech sector and propelled stock markets, it has also led some organisations to re-evaluate their hiring, with fewer entry-level white-collar roles for school leavers and graduates.
In response to the weaker outlook for both jobs and inflation, City economists now anticipate the Bank of England will cut interest rates at least twice this year, potentially bringing the base rate down to 3.25% from its current level of 3.75%.
