Introduction: UK labour market continues to weaken
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The UK’s labour market ‘continues to weaken’, according to the latest employment and unemployment data, just released, highlighting the economic challenges facing the government.
The Office for National Statistics has reported that the UK’s unemployment rate rose in the March to May quarter, to 4.7%. UPDATED: That’s up from 4.5% in the December-February, and higher than economists had expected.
Today’s jobs report also shows that the estimated number of vacancies in the UK fell by 56,000 on the quarter, to 727,000, in April to June 2025, as companies continued to cut back on hiring.
Wage growth slowed too: annual growth in employees’ average earnings for both regular earnings (excluding bonuses) and total earnings (including bonuses) was 5.0%.
That means the cost of living squeeze has tightened, as inflation has now risen to 3.6%.
That’s down from 5.3% for regular pay, and 5.4% for total pay, a month ago.
ONS director of economic statistics Liz McKeown says:
“The labour market continues to weaken, with the number of employees on payroll falling again, though revised tax data shows the decline in recent months is less pronounced than previously estimated.
“Pay growth fell again in both cash and real terms, but both measures remain relatively strong by historic standards.
“The number of job vacancies is still falling and has now been dropping continuously for three years.”
The report also shows that the UK employment rate increased to 75.2% – up 0.2 percentage points on the previous quarter – while the economic inactivity rate (which tracks how many people are neither in work nor looking for a job) dropped to 21.0%, from 21.4% three months ago.
The agenda
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7am BST: UK labour market report
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10am BST: Eurozone inflation report for June
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1.30pm BST: US retail sales for June
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1.30pm BST: US weekly jobless data
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1.30pm BST: The ‘Philly Fed’ business conditions report
Key events
Jobs Foundation: UK in a ‘serious jobs recession’
Matthew Elliott, president of the Jobs Foundation, has warned the UK is facing the steepest fall in payrolled employment since the pandemic.
Elliott says:
“Today’s figures confirm that the UK is now in the midst of a serious jobs recession. The steepest fall in payrolled employment since the pandemic is a serious wake up call to the Government.
“The hike to Employer NICs has had the predicted damaging impact on jobs, and businesses are now worrying about further tax rises to come in the Autumn Budget.
“Welfare reforms have already been U-turned on, and now jobs are going too. If the Government is serious about getting people back to work, the Chancellor must deliver a pro-growth, pro-jobs plan in the Autumn Budget.”
UK government borrowing costs are rising this morning, as traders digest the ‘ugly picture’ painted by today’s jobs data.
The yield, or interest rate on UK tw0-year bonds touched their highest level since 9 July. They rose by 5 basis points in early trading to 3.904%, up from 3.877% last night, before slipping back.
Five-year gilt yields hit their highest level since mid-June, up 4 basis points to 4.093%, before nudging back down to 4.08%
XTB’s Kathleen Brooks explains:
European bond yields are rising today; however, the UK is an outlier, and bond yields are rising faster than our European peers.
Rising yields suggest that bond investors might be starting to shun the UK after economic data released in recent days paints an ugly picture of the UK economy.
Falling GDP, rising inflation and a weak labour market could trigger more underperformance of the UK bond market compared to our peers over the rest of the summer.
Another sign of labour force weakness: the number of unemployed people per vacancy rose to 2.3 in March to May 2025, up from 2.0 in the previous three months.
This is the highest level in almost a decade, if you strip out the disruption caused by the Covid-19 pandemic
The ONS explains:
Recent increases are because of the continued decline of vacancies and an increase in unemployment in recent periods. The last time the number of unemployed people per vacancy was 2.3 or more before the pandemic was in January to March 2016.
XTB: UK data paints ugly picture of economy
Today’s UK jobs data paints an “ugly picture” of the economy, warns Kathleen Brooks, research director at XTB.
She explains:
UK labour market data for the three months to May showed another decline in the number of payrolled employees (see here), and a rise in the unemployment rate (see here).
The UK economy shed 25,000 employees in May and a further 41,000 for June, this brings the total number of UK job losses in the past year to 178k, which will be uncomfortable reading for the government.
This does not mean that people have left the workforce completely, they may be working off the books, setting up their own businesses, or working as contractors. However, in the 3 months to May, the unemployment rate rose to 4.7%, which is the highest rate since 2021.
The relentless rise in the unemployment rate is a further sign that the UK economy is creaking and could become the sick man of Europe.
Deutsche Bank’s chief UK economist Sanjay Raja agrees that the UK’s labour market is continuing to cool, with both payrolls and vacancies down.
Raja explains:
Redundancies remain elevated with the May data showing a 114k increase in the three months to May – its highest level in three months. Jobs demand remains weak as hiring plans are near a standstill.
This will continue to see unemployment rise – but we think this will be a slow grind higher as opposed to a whipsaw higher. For the MPC, despite the bump higher in inflation, the loosening in labour market should give the BoE reason to proceed with a gradual dial down of restrictive policy.
A ‘gradual and careful’ approach seems appropriate for now. And we do not think that the bar for faster rate cuts has been met just yet. The labour market is loosening, but perhaps not as fast as the unrevised payroll data suggested.”
August interest rate cut probability inches up
The chances of a Bank of England interest rate cut next month have risen, a little, since this morning’s UK jobs data was released.
The money markets currently indicate there is a 77% chance of a rate cut in August, up from 75% last night.
Paul Dales, chief UK economist at Capital Economics, predicts the Bank will continue to cut interest rates gradually from 4.25% now to 3.00%.
Dales says:
The fallout in the labour market from the hikes in National Insurance Contributions and the minimum wage is not as big as previously thought. Even so, as payroll employment is falling and wage growth is easing, the Bank of England will still continue to cut interest rates despite yesterday’s strong inflation release.
Vacancies have fallen for three years running
It’s getting increasingly hard to find a job.
Today’s labour market report shows that the number of vacancies across the UK economy dropped in the last quarter, for the 36th time in a row, by 56,000 to 727,000.
That’s fewer than just before the Covid-19 pandemic, which caused a slump in vacancies and then a surge as firms scrambled to hire staff:
Vacancy numbers have now been falling continually for three years, with the total number of vacancies decreasing by an estimated 573,000 since its peak in March to May 2022, the ONS says, adding:
Feedback from our Vacancy Survey suggests some firms may not be recruiting new workers or replacing workers who have left.
Minister for Employment, Alison McGovern, points out that the number of people in employment has risen by almost 400,000 since June-August last year.
“We are helping more people into work and putting more money in their pockets.
“With 384,000 more jobs added to the economy since last summer, real wages continuing to rise and – as these latest figures highlight – inactivity falling, we are all feeling the benefits.
“But we need to go further. Under our plan for change, jobcentres everywhere are changing to end the tick box culture and serve employers and those who need work better. For people in areas with the highest economic inactivity we are funding new work to make sure barriers to employment are removed.
“Alongside this we are fixing the social security system so it helps those who can work into employment whilst ensuring the safety net will always be there for those who need it.”
JLR ‘to cut 500 managerial jobs’
Car maker Jaguar Land Rover has said it is to axe up to 500 management jobs in the UK through a voluntary redundancy programme, PA Media reports.
According to the Daily Mail, JLR has said it would offer voluntary redundancies, and insisted the job losses will not go over 1.5% of its British workforce.
Like many car companies, JLR has faced trade war disruption. Last month it warned of a hit to profits from Donald Trump’s tariffs, after temporarily pausing deliveries to the US.
It also attracted some criticism last December when it unveiled a radical rebrand:
Regular pay grew faster in the public sector than the private sector in the last year, according to today’s labour market report.
It shows that annual average regular earnings growth was 5.5% for the public sector and 4.9% for the private sector in March-May.
Across sectors, pay rose fastest in the wholesaling, retailing, hotels and restaurants sector. at 7.1%. The finance and business services sector had the lowest annual regular growth rate, at 3.1%.
Looking back at the payrolls data, the biggest job losses over the last year have been in the hospitality sector.
There has been a fall of 108,000 jobs in the accommodation and food service activities sector in the last year, the jobs report shows.
But the largest increase was in the health and social work sector, with a rise of 67,000 employees.
Unemployment rate at four-year high
At 4.7% in March-May, the UK unemployment rate for those aged 16 and over is now at its highest rate since April-June 2021.
178,000 payrolled jobs lost in Labour’s first year
Today’s jobs report shows that there has been a steady drop in the number of payrolled employees in the UK this year.
Company payrolls peaked in July 2024, the month of the general election, at 30.451m.
But they have fallen in most months since; by last month, payrolls had dropped to an estimated 30.265m.
That, the ONS reports, is a decline of 178,000 employees over the 12-month period since June 2024.
This decline will fuel criticism of Rachel Reeves’s budget last autumn, which hiked taxes on employers, leading to warnings that companies would cut back on hiring.
Today’s jobs report estimates that last month, payroll numbers fell by 41,000 people.
But there is some good news for the government. The ONS has revised its estimate for May’s payroll numbers, to a decrease of 25,000, not the whopping 109,000 fall first estimated.
That suggests the job
Introduction: UK labour market continues to weaken
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The UK’s labour market ‘continues to weaken’, according to the latest employment and unemployment data, just released, highlighting the economic challenges facing the government.
The Office for National Statistics has reported that the UK’s unemployment rate rose in the March to May quarter, to 4.7%. UPDATED: That’s up from 4.5% in the December-February, and higher than economists had expected.
Today’s jobs report also shows that the estimated number of vacancies in the UK fell by 56,000 on the quarter, to 727,000, in April to June 2025, as companies continued to cut back on hiring.
Wage growth slowed too: annual growth in employees’ average earnings for both regular earnings (excluding bonuses) and total earnings (including bonuses) was 5.0%.
That means the cost of living squeeze has tightened, as inflation has now risen to 3.6%.
That’s down from 5.3% for regular pay, and 5.4% for total pay, a month ago.
ONS director of economic statistics Liz McKeown says:
“The labour market continues to weaken, with the number of employees on payroll falling again, though revised tax data shows the decline in recent months is less pronounced than previously estimated.
“Pay growth fell again in both cash and real terms, but both measures remain relatively strong by historic standards.
“The number of job vacancies is still falling and has now been dropping continuously for three years.”
The report also shows that the UK employment rate increased to 75.2% – up 0.2 percentage points on the previous quarter – while the economic inactivity rate (which tracks how many people are neither in work nor looking for a job) dropped to 21.0%, from 21.4% three months ago.
The agenda
-
7am BST: UK labour market report
-
10am BST: Eurozone inflation report for June
-
1.30pm BST: US retail sales for June
-
1.30pm BST: US weekly jobless data
-
1.30pm BST: The ‘Philly Fed’ business conditions report