Britain's jobs market is facing a challenging period, with rising job losses, fewer employers hiring, and inflation eroding wage growth. For Chancellor Rachel Reeves, the latest figures are unwelcome news, showing a decline in employees on company payrolls in July and a slowdown in annual wage growth in the three months to June.
Since the general election last July, the number of employees on payrolls has fallen by 164,000, with a drop of 8,000 in July alone. The official unemployment rate remained at 4.7% in the three months to June, above the 4.2% inherited a year ago and the highest since 2021. Economists attribute the weakness to a sluggish economic outlook and the chancellor's £25bn rise in employer national insurance contributions (NICs), implemented in April.
Job losses have been concentrated in retail and hospitality, sectors heavily reliant on part-time and flexible contracts, and most exposed to rising employment costs. Hiring intentions have fallen to record lows amid uncertainties from Donald Trump's trade war, sluggish consumer spending, lingering inflation, and elevated interest rates.
For workers, the re-emergence of high inflation—forecast to peak at 4% by September—will erode real-terms pay. Average earnings growth, which puzzled analysts, is expected to slow to around 3.75% by year-end. Real annual pay growth stood at 1.5% for regular pay and 1.1% for total pay in the three months to June.
Despite the challenges, there are crumbs of comfort. The impact of the NICs increase may have passed its peak pain point, and job losses, while rising, have not rocketed. Advanced redundancy notifications remained subdued in July. The labour market is cooling gradually, not collapsing as some employer groups predicted.
For the Bank of England, this gradual pace justifies a careful approach to further interest rate cuts. For the chancellor, it underscores the need for a carefully calibrated autumn budget to avoid deeper harm to workers.
