UK workers and employers alike are facing a shifting landscape as the latest data from the Office for National Statistics (ONS) paints a picture of a job market that’s cooling but not collapsing. Over the summer of 2025, wage growth slowed, unemployment nudged upward, and job vacancies continued a long trend of decline, all signaling a softer, more cautious phase for the British economy as it heads toward the end of the year.
According to the ONS, average wage growth in the UK was 4.7% in the three months to August 2025, a slight dip from 4.8% in the previous reporting period. This moderation in pay comes as the national unemployment rate inched up from 4.7% to 4.8%, marking the highest level since May 2021. The jobless rate’s rise, though modest, caught some economists off guard, as many had expected it to hold steady—a sign that the labor market is feeling the effects of a slower economy and tighter corporate budgets, as reported by both BBC and Invezz.
One of the most striking trends in this period is the continued fall in job vacancies. The number of open positions declined by 9,000—or 1.3%—in the three months to September, bringing the total to 717,000. This marks the 39th consecutive period of falling job openings, a statistic that underscores just how persistent the slowdown in hiring has been. As Liz McKeown, the ONS’s director of economic statistics, put it: “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.”
But the pain of rising unemployment hasn’t been felt evenly. Young people are bearing the brunt of the uptick, with McKeown noting, “the increase in unemployment was driven mostly by younger people.” This is a worrying development for those just entering the workforce, especially as many of the part-time and entry-level jobs they rely on have become scarcer.
Danni Hewson, head of financial analysis at AJ Bell, told the BBC: “The figures are creating a clearer picture of a labour market that’s soft, with younger workers facing the biggest challenges.” Hewson pointed to the decision by Chancellor Rachel Reeves to raise employer national insurance contributions earlier this year—a move that “made it more expensive for employers who had lots of part-time staff, many of them being younger workers dipping their toe in the labour market for the first time.” She added, “The fact the ONS has found that the rise in unemployment in the three months to August was driven mostly by younger people suggests those warnings have become reality. Making it harder to find these types of jobs could have a marked impact on their relationship with work in the future.”
It’s not just the young who are feeling the squeeze. The ONS data also show a quarterly drop in the number of people who are economically inactive because they are students or retired, but this was offset by a rise in inactivity due to long-term illness and other reasons. The number of people made redundant between June and August 2025 increased to 3.8 per 1,000 employees, up from the same period last year.
Wage growth, while still outpacing inflation, is losing steam. In the private sector, annual earnings growth slipped to 4.4%, the lowest in four years and below market forecasts. Public sector pay growth, on the other hand, rose to 6%, largely due to backdated settlements for government workers and some pay rises being paid earlier in 2025 than in 2024. This widening gap between public and private sector pay is notable, especially as the latter’s growth remains just ahead of inflation, which stood at 3.8% in 2025.
Real wage growth—the increase in pay after accounting for inflation—remains positive but is described by many as “paltry.” According to the Resolution Foundation, real weekly wages have only increased by £1.50 since last September, which, as economist Charlie McCurdy dryly noted, is “barely enough to cover the cost of a Greggs sausage roll.” The think tank warns that “the deteriorating labour market, coupled with persistently high inflation, means that cost of living pressures are likely to build over the autumn.” The Liberal Democrats echoed this sentiment, stating that real wage growth is barely keeping up with inflation.
Employers, for their part, cite the rising cost of national insurance as a key reason for cutting back on new hires. Sarah Coles, head of personal finance at Hargreaves Lansdown, commented, “Finding a job is more of an uphill task with each passing month. For those in work, meanwhile, wages are now rising only a fraction ahead of inflation.” She added, “It’s not all doom and gloom. At this level, unemployment remains low by historic standards, and the employment rate has actually risen slightly over the past year.”
Chris Hare, senior UK economist at HSBC, told BBC Radio’s Today programme that the data indicate “a fairly steady labour market.” He explained, “I think we’re probably seeing fairly soft demand for labour in the economy,” and predicted that this should lead to “a gradual easing in broader cost pressures in the labour market and an easing in wage growth.”
The job market’s recent turbulence can be traced in part to the government’s tax-heavy budget last October. Since Chancellor Reeves’ changes, total job losses stand at 127,000—far fewer than some had feared, but still a significant figure. Earlier in 2025, job losses were much steeper as firms adjusted to higher costs from new tax and minimum-wage rules. Yet, as Invezz points out, the smaller-than-expected decline in payrolls suggests that employers are holding on to staff, even as hiring activity cools.
Financial markets have been quick to react to the latest figures. The pound slipped as traders increased bets that the Bank of England will deliver rate cuts in 2026, with some now expecting borrowing costs to reach 3.5% by summer. While policymakers have ruled out further cuts this year, the gradual cooling in wages and hiring could strengthen the case for easing monetary policy next spring. The Monetary Policy Committee remains divided: some members warn that high wages could feed into prices, while others see the slowdown in pay growth as evidence that disinflation is taking hold.
For now, the ONS is urging caution in interpreting the unemployment rate, as it takes additional steps to address concerns about data quality. But the overall message is clear: the UK’s labour market, while not in crisis, is entering a more tentative phase. Both workers and businesses are adjusting to new realities, and the coming months will test just how resilient this “steady” market really is.
