Employers are “freezing recruitment, delaying investment, and quietly trimming headcount”, in the wake of national insurance (NI) increases and imminent legislative changes, according to one expert commenting on the ONS Labour Market figures out today.
ONS data shows that in March to May 2025, the annual growth in employees’ average earnings in Great Britain (England, Scotland, and Wales) was 5 percent.
In the public sector yearly earnings grew 5.5 percent, while in the private sector it grew 4.9 percent.
Job vacancies in the UK fell to 727,000 in the three months to June 2025, down 56,000 on the quarter. Vacancies have now fallen for three years in a row. ONS said that its vacancy survey suggests some firms may not be recruiting new workers, or replacing workers who have left.
Unemployment is creeping up, estimated at 4.7 percent in March to May 2025. This is above figures from last year, and a rise in the latest quarter.
The UK economic inactivity rate was estimated at 21 percent in March to May 2025, which is down on estimates from a year ago, and down in the latest quarter.
In March to May 2025, the employment rate was 75.2 percent, which is higher than last year, and up in the latest quarter.
James Cockett, senior labour market economist for the CIPD, said that all of the data indicates that the labour market is cooling off, which is reducing recruitment pressures on employers.
“Outside of the pandemic, vacancies have fallen to their lowest level since 2015. On the flip side, it’s becoming a harder jobs market for candidates with the number of unemployed per vacancy, a sign of labour market slack, reaching levels last seen in early 2016, again outside of the pandemic.”
He said that pay growth is easing, but is still “high by historic standards”, as employers continue to grapple with rising costs. UK inflation jumped to 3.6 percent in the year to June up from 3.4 percent in May, marking an 18 month high.
Cockett added: “The immediate effect of NI increases is less muted than previously thought, but the number of payrolled employees has fallen in all but one month since the changes were announced last October.”
Julia Turney, partner and head of platform and benefits at Barnett Waddingham, said: “With unemployment figures inching up, the labour market appears to be treading water as businesses batten down the hatches to protect cash reserves in the wake of NI increases and looming changes under the Employment Rights Bill. The result? Employers are freezing recruitment, delaying investment, and quietly trimming headcount – not due to a lack of demand, but because profit margins have become paper-thin.”
She said that conversely, employers are facing rising expectations from financially stretched workforces demanding greater flexibility, support, and purpose.
“In this environment, maintaining stability will depend not just on cost control, but on clarity. Here, data will be the guiding compass – offering the insight leaders need to make smarter workforce decisions, respond to emerging risks, and sustain long-term pressures that are seemingly ever-present.”
Charlie McCurdy, economist at think tank the Resolution Foundation, said: “The jobs market continues to weaken and has now shed 143,00 employee jobs over the past seven months. This weakness is starting to show up in lower wage growth, with the recent pay recovery rapidly running out of steam.
“The latest jobs data presents a clear case for lowering interest rates. But higher than expected inflation muddies the picture. The Bank of England’s decision next month is far from straightforward.”
