Labour market showing signs of calming after a bruising period for job losses 

The UK labour market continues to cool as the number of payrolled jobs falls and wage growth slows. But the rapid deterioration in the first half of the year, centred around the increase in National Insurance contributions, has calmed, the Resolution Foundation said today (Tuesday) in response to the latest ONS labour market statistics.

The number of payrolled jobs fell by 6,000 in July and a further 8,000 in August, based on initial data. While disappointing, the pace of decline has slowed considerably compared to the 17,000 a month job falls between October 2024 and June 2025.

The ONS’s estimate of the unemployment rate – which recent Resolution Foundation work found to be more reliable than its estimate of the employment rate, and consistent with other data like vacancies – is 4.7 per cent for the three months to July. That is up by 0.4 percentage points on the year, meaning an additional 194,000 people looking for work – but has been flat for two successive months.

The Foundation’s employment rate estimate, based on tax and population data, remains at 75.2 per cent for July and August. The ONS’s employment rate – normally the leading indicator for the UK labour market – is getting the level of employment across Britain right, but the trend of where it’s been going wrong. While frustrating this at least shows signs that the ONS’s methodology improvements are having an effect.

Pay growth continues to slow – offering good news for Bank of England policy makers but bad news for workers. While headline annualised regular nominal weekly pay (excluding bonuses) still grew at a robust 4.8 per cent in the three months to July, shorter-term indicators suggest private sector nominal pay growth has slowed to 3.9 per cent in recent months. After adjusting for inflation, the level of regular weekly pay has only increased by 0.3 per cent – or £2 – since the start of 2025.

Pay growth has been strongest in the sectors affected by the minimum wage, with wholesaling, retailing, hotels and restaurants sector showing the strongest annual regular growth rate, at 6.4 per cent.

With annualised regular nominal weekly pay (including bonuses) growing at 4.7 per cent, retirees are set for another significant boost in the state pension next April with the New State Pension rising by £10.82 a week to £241.07. As working-age benefits are set to rise by the (likely) lower inflation figure in September, the gap in support between younger and older generations will continue to grow.

Nye Cominetti, Principal Economist at the Resolution Foundation, said:  

“The UK labour market is cooling as the number of payrolled jobs and vacancies decline. But it is showing signs of calming too after a turbulent few months, suggesting the effects of the National Insurance rise this April have passed through.

“Real wages are still rising but Britain’s pay recovery is running out of steam. While this is good news for Bank officials worried about sticky inflation, it’s less good news for workers.

“The big winner from today are pensioners, who are set for another inflation-busting rise in the state pension next April. With working-age benefits likely to rise by less, the gap in state support for younger and older generations will continue to grow.”