British private employers have all but stopped bidding for workers. Wage growth outside the public sector fell to 2.9 percent, the first time it fell below 3 percent since the pandemic in 2020, while payrolls fell by 4,000 and vacancies fell for another month.
The Office for National Statistics said the small cuts in June were against the City’s projections for an increase of 20,000 jobs. The unemployment rate was unchanged at 4.9 percent in the three months to May, as it was expected to rise to 5 percent.
For business owners, the important number is not the number of unemployed people but the 712,000 job vacancies that remained open across the economy, down by 7,000 in the quarter. The ONS attributed the decline to smaller firms choosing not to hire to manage their wage bills and costs.
That is a common figure in any SME finance meeting. If hiring costs are fixed and demand is uncertain, space is the first thing to go. The result is a labor market that looks more stable when all is said and done while the employment of small employers sinks deeper.
Total average wage growth, including bonuses, slowed to 4.3 percent from 4.4 percent in the previous three months, and was unchanged at 3.9 percent excluding bonuses. The gap between the sectors is now clear: public sector pay ran at 5.5 per cent, reduced by the NHS’s time to pay awards, against 2.9 per cent in the private sector.
Peter Dixon, senior economist at the National Institute for Economic and Social Research, said the slowdown in wage growth “will complicate Andy Burnham’s promise to give people breathing room to help with the cost of living, especially as inflation is set to pick up in the second half of the year”.
There is a paradox in the numbers of anyone who hires. Employment in the three months to May actually jumped by 64,000 to just under 34.5 million, and the unemployment rate fell to 20.9 percent from 21 percent. Many people are looking for work at the same time that employers are terminating the hiring process. Firms that can recruit will find the candidate market friendlier than it has been in years.
Payrolls across the economy are still rising faster than inflation for the 36th month in a row. Data due on Wednesday showed inflation reached 2.7 percent in the year to June, which would be the slowest rate since March 2025. The economy returned to growth in May, with GDP up 0.1 percent for the month.
The caveat is warranted. The ONS, whose labor market data has been plagued by inaccuracies over the past two years, said it had carried out fewer interviews in recent times “due to the performance crisis, but our analysis suggests the impact on our headline rating is minimal”. Estimates of wages and employment are available from separate data sets, and the former is often updated.
Liz McKeown, director of economic statistics for the ONS, said: “The latest data shows a strong labor market picture, although some measures continue to suggest softness.” He added: “The number of wage earners was the lowest in recent months, while survey estimates suggest that employment, unemployment and underemployment rates have not changed much in recent quarters.”
The cost of studying and borrowing is more important than the job numbers themselves for many owner-managers. Economists believe the health of the labor market will partly determine whether the Bank of England raises interest rates this year to deal with price pressures caused by the energy shock of the Middle East war.
The monetary policy committee meets on July 30 and is expected to leave borrowing costs unchanged at 3.75 percent. UK government bond yields have risen sharply in the past month due to the escalation of hostilities between the US and Iran, which is why rate cuts remain on the table for now.
Cooling wages growth is one variable pushing in the other direction. Firms engaged in recruitment to protect margins, collectively, do the work of the Bank.
