The UK labour market is displaying increasingly evident signs of a slowdown, with fresh data from the Office for National Statistics (ONS) indicating a continued decline in payroll employment alongside a marked deceleration in wage growth. These trends could signal to the Bank of England that inflationary pressures are beginning to ease, potentially influencing upcoming decisions on interest rates.
HM Revenue and Customs figures reveal a drop of 33,000 in payroll employees during April 2025, following a downward revision of 47,000 for March. Total payroll employment now stands at 30.3 million, reflecting a year-on-year decline of 106,000. The most pronounced contraction occurred in the accommodation and food services sector, which shed 107,000 jobs. Concurrently, the number of job vacancies fell by 42,000 in the three months leading to April, reaching 761,000—a figure 5.3% lower than pre-pandemic levels.
Average weekly earnings excluding bonuses rose by 5.6% year-on-year in the first quarter of 2025, reaching £671. This figure fell short of market expectations of 5.7% and marked the weakest growth rate since November 2024. Private sector wage growth slowed to 5.6%, the lowest in five months, while public sector pay increased by 5.1%, the slowest pace in four months.
The UK unemployment rate edged up to 4.5% between January and March 2025, the highest level since August 2021. Additionally, a growing proportion of the workforce has taken on secondary employment, with 3.9% of all employed individuals now holding more than one job.
The Bank of England closely monitors labour market conditions as a key determinant of inflationary pressure. The cooling wage growth and contracting employment figures may prompt the Monetary Policy Committee to consider an earlier easing of monetary policy, including potential interest rate cuts in the latter half of the year. Historical data suggests that such labour market softening has preceded policy adjustments in previous economic cycles, reinforcing the likelihood of a dovish shift if current trends persist.
