UK Labour Market Slows

In the latest sign that the UK labour market is continuing to slow down, this morning’s figures from the ONS indicate that unemployment rose as wage growth eased.

Here, the ILO Unemployment Rate rose by 0.1 percentage point to 4.7%, its highest level since August 2021 and 0.6 percentage point higher than a year ago. This marked the third consecutive rise in unemployment and marks a considerable increase from the 4% figure recorded in August.

Meanwhile wage growth excluding bonuses came in at 5% – its lowest level in around three years. Notwithstanding how it came in 0.3 percentage point down from last month, it was slightly higher than expected. The slowdown in wage growth including bonuses was slightly more pronounced (from 5.4% to 5%) coming in line with expectations.

Additionally, between April and June 2025, the estimated number of job vacancies in the UK declined by 56,000 compared to the previous quarter, bringing the total to 727,000. This marks the 36th consecutive quarterly decrease in vacancies, with 14 out of 18 industry sectors reporting a drop.

Commentators have cited heightened economic uncertainty as a driving force behind the slowdown in the labour market, in addition to April’s tax hikes, including the rise in employers’ national insurance contributions.

This morning’s figures raise further concerns around the trajectory of growth and the prospect of stagflation given that it comes against the backdrop of Friday’s contractionary GDP print (-0.1% vs 0.1% expected) and Wednesday’s hotter-than-expected inflation (3.6% vs 3.4% expected).

Such stagflationary concerns come as markets gear up for the Bank of England’s next MPC meeting on 7th August. The prospect of slowing growth, a cooling labour market and rising inflation thus present a considerable challenge for policy makers and could further highlight the division between Threadneedle Street’s Doves and Hawks.

Presently money markets are implying that there is around 91% chance of a 25bps cut, against an 88% chance being priced in yesterday. Looking further ahead markets are implying that there are three 25bps cuts priced in over the next 12 months.