Jobs weakness means UK employment rate has now been declining for two years

The latest figures on the UK labour market reveal that the employment rate is estimated to have been falling for the two years to March 2025, while pay packets are starting to flatline in real terms – in the last glimpse of the UK labour market before changes to the Minimum Wage and Employer National Insurance contributions (NICs) came into effect in April, according to the Resolution Foundation today (Tuesday).

Payrolled employment fell slightly by 8,000 in February, and then more significantly by 78,000 in March, according to the latest HMRC payroll data. Recent declines have been markedly higher in certain sectors, with employment in the accommodation and food services sector falling by 3.1 per cent in the six months to March – 10 times faster than the economy as a whole. Vacancies across the labour market also fell by 25,000 over the last quarter, from 806,000 to 781,000, taking vacancies below their pre-pandemic level.

This cooling could be caused in part by employer preparations for recently implemented increases in the rate of the Minimum Wage and NICs, which will affect lower-paid sectors more, but is also consistent with the lacklustre GDP growth and declining business confidence we have seen over recent months.

At the same time, nominal pay growth remains strong, limiting scope for the Bank of England to cut interest rates. Average Weekly Earnings growth in the private sector pay was 5.9 per cent in the 3-months to February 2025 – equal to the previous 3-month period (both in nominal terms). However, higher frequency measures give a more mixed picture.

Despite a jobs squeeze, some lower-paid sectors were faring well for pay (before the increase in the Minimum Wage came into effect) with the accommodation and food service sector seeing annual growth in nominal median pay of 7.5 per cent (compared with 4.8 per cent across the economy as a whole).

Overall, real pay has grown respectably over the past year (up 2.1 per cent in the year to February), but there are now signs that growth is beginning to slow, the level having flatlined since October. And despite strong growth in recent times, weekly real pay is still only £27 above where it was on the eve of the 2008 financial crisis.

Louise Murphy, Senior Economist at the Resolution Foundation, said:

“The last snapshot of the labour market before the Government’s Minimum Wage and Employer National Insurance contributions uplift reveals a picture of stalling jobs and real pay. This sluggishness in jobs is nothing new, as we have just marked two years of a falling employment rate.

“The continued jobs slowdown, and stalling pay, add to the headwinds for living standards in the face of rising taxes and bills.”