The UK labour market showed further signs of cooling over the summer, with the number of payrolled employees falling and job vacancies continuing to decline.
Figures from the Office for National Statistics (ONS) reveal that between August 2024 and August 2025, the number of payrolled employees fell by 93,000 (0.3 percent). This also included a modest month-on-month increase of 10,000 payrolled employees between July and August 2025.
However, in the three months to August 2025 employment dropped by 115,000 (0.4 percent) year-on-year and 31,000 (0.1 percent) over the three month period.
Early ONS estimates for September 2025 point to a further decline of 100,000 (0.3 percent) compared with the same month last year, taking the total number of payrolled employees to 30.3 million.
The employment rate for people aged 16 to 64 was estimated at 75.1 percent in June to August 2025. This is down slightly from the previous quarter but higher than a year ago.
Meanwhile, the unemployment rate rose to 4.8 percent, up on both the quarter and the year. The economic inactivity rate stood at 21 percent, which was broadly stable but below last year’s estimate.
Fall in job adverts
Vacancies continued their long decline, dropping by 9,000 (1.3 percent) between July and September to 717,000, and are now below pre-pandemic levels.
This marks the 39th consecutive period of decline, with vacancies down in nine of the 18 industry sectors measured.
Despite signs of weaker demand for labour, pay growth remains relatively robust. Annual growth in regular pay (excluding bonuses) was 4.7 percent, while for total pay (including bonuses) it was 5 percent.
The public sector saw higher wage growth at 6 percent, compared with 4.4 percent in the private sector, partly reflecting the timing of public sector pay settlements earlier in 2025.
Encouragingly for employees, real pay growth, adjusted for inflation, turned positive. Regular pay rose 0.6 percent in real terms (using the consumer prices index including owner occupiers’ housing costs (CPIH)) and 0.9 percent (using the consumer prices index excluding owner occupiers’ housing costs (CPI)). Total pay increased 0.8 percent using CPIH and 1.2 percent using CPI.
Impact of NI hit
“Vacancies are continuing to fall as the labour market cools. It appears that the full impact of national insurance changes has now been reached, with the number payrolled employees numbers remaining stable,” said James Cockett, senior labour market economist at the CIPD.
“However, employers are likely to be cautious about November’s Budget and upcoming changes to employment legislation, which combined, may deter hiring further over the coming months.”
Cockett said that as employment costs remain high, it was critical that employers are not discouraged from hiring young people, especially in key sectors like retail and hospitality which provide many young people with their first job.
“Unemployment for young people aged 18-24 has fallen slightly but remains high at 12 percent, highlighting the need for action by policy makers and employers to create employment opportunities for this group.
“A key priority for the government should be to consult meaningfully on key measures in the Employment Rights Bill still to be decided in secondary legislation. It’s vital these measures don’t act as a headwind on employment growth and add cost and complexity to the process of recruiting and managing new staff, and younger people in particular.”
Pay growth support
Commenting on the pay data, he said: “There are two key factors likely to be supporting continued high pay growth. Firstly, public sector pay growth is being affected by some public sector pay rises being paid earlier in 2025 than in 2024. And secondly employers in low wage sectors, such hospitality and retail, continue to be disproportionately impacted by the April rises in national insurance and the minimum wage.”
Julia Turney, partner and head of platform and benefits at Barnett Waddingham, said: “Businesses are still navigating choppy waters. Six months on from April employer cost increases, many have anchored their budgets with wages remaining static and the labour market showing little forward momentum.
“The Budget is the next hurdle to overcome, with hopes that further cost pressures won’t materialise and further stifle hiring or growth. This will be the moment for employers to think strategically, not reactively. Those that put insight-driven measures in place to understand their staffing needs will be those best-placed to steady the ship, safeguard their people, and seize opportunities when the tide turns.”
Stagnant vacancies and shrinking budgets
Mark Jones, partner at Isio, said: “HR teams are stuck between stagnant vacancies and shrinking budgets. Every proposal, from benefits to wellbeing, is being interrogated by chief financial officers who want proof it delivers financial value. Without that evidence, initiatives are being delayed, diluted, or cut altogether.
“The smartest employers are moving away from broad-brush promises and towards targeted, measurable strategies. That means tracking absenteeism, monitoring claims, and proving that interventions improve productivity and retention. Without this rigour, support risks being dismissed as discretionary spend.”
He said the choice is simple, “treat workforce investment as a line item to be cut, or as a tool to control costs and stabilise talent”.
“In a labour market this tough, only the organisations that can demonstrate return on investment will get the backing they need to compete,” Jones said.
Kevin Fitzgerald, UK managing director at Employment Hero, called the ONS data “the latest demonstration of the UK’s tightening labour market”.
He said: “A decline in the employment rate aligns with Employment Hero’s own real-time data, which shows that employment growth is losing momentum. Our September Jobs Report found that total employment rose 2.6 percent in September, but year-on-year growth has fallen sharply from the 8.5 percent recorded in September 2024.
“Small businesses are more susceptible to policy changes, so our data reflects sharper movements. But that responsiveness shows the real-world realities of small business owners across the UK, who are often the first to feel the impact of economic shifts. Because our data tracks these nimble, reactionary businesses, it can also reveal trends sooner than broader national data – for example, we’re already seeing signs that employment growth is starting to level off.
“Vacancy numbers have now been falling continually for more than three years. The labour market is becoming increasingly competitive, with jobseekers finding it harder to land new opportunities. When we look at our own data, we can see that average pay increased by 3 percent month-on-month in September and is up 2.2 percent compared to this time last year. Rising costs are placing even more financial pressure on businesses who have been forced to adapt.
“The figures underline the strain that uncertainty around November’s Autumn Budget, combined with persistent inflation, is placing on businesses. With speculation around potential tax rises, many employers are understandably playing it safe when it comes to hiring – but those still hiring are the small businesses willing to take a risk rather than stall growth. That’s resilience in action. This Budget is a crucial opportunity to restore business confidence, which largely depends on avoiding tax changes that could stifle long-term investment.”
‘Settled into a pattern’
Jack Kennedy, senior economist at jobsite Indeed, described the stabilised labour market as having “settled into a pattern” in which hiring appetite remains weak but job losses are limited. He called it “a tough environment for those out of work and new entrants, while those who have a job are more likely to stay put”.
“With employer confidence still somewhat fragile, the labour market seems unlikely to shake off its stagnancy soon, though improved visibility post-November’s Budget may give businesses a little more certainty ahead of their workforce planning for next year,” he said.
“While pay pressures continue to gradually ease, it’s still running hot and the next rate cut from the Bank of England looks off the table until 2026.”
