The latest employment and unemployment data shows that the annual rate of pay growth in the three months between March and May slowed to 5%, while the unemployment rate has risen to 4.7%, its highest in four years.
In March to May 2025, the estimated UK employment rate increased 0.2 percentage points to 75.2%, the UK unemployment rate increased 0.2 percentage points to 4.7%, and the UK economic inactivity rate decreased 0.4 percentage points to 21% compared with December 2024 to February 2025.
Unemployment has been trending up for three years and is now higher than before the pandemic. Job vacancies fell by 56,000 to 727,000 in April to June. It was the 36th successive quarter of falls, and vacancies are now 68,000 below their pre-pandemic level.
The ONS says that companies are cutting numbers by not replacing staff after they leave. As a result, the number of unemployed people per vacancy rose to 2.3% – up from 2% last month.
However, the ONS said the figure needs to be treated with caution due to issues with how the data is collected.
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Kevin Brown, savings expert at Scottish Friendly, said: “A period of buoyant wage growth appears to be drawing to a close, with a notably lower reading this month. It suggests that an uncertain global economic environment, plus higher employment taxes from April, may be weighing on companies’ hiring and pay decisions.
“For households, it comes at a time when inflation is proving worryingly persistent. The latest CPI reading showed inflation ahead of expectations. With the gap between wage growth and rising prices narrowing, a potential squeeze on disposable income is looming.
“That said, it may be better news for the UK economy as a whole. Wage growth is an important swing factor for the Monetary Policy Committee and today’s reading may allow enough space for a rate cut at the start of August. It should also feed into future inflation and dampen price rises over the longer term.”
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The Bank of England was hoping for bad news from the labour market, and it got what it wanted: wage growth has slowed and unemployment has risen again. For the bank, this is a sign of growing slack in the labour market, which is likely to ease inflationary pressures, and mean it can cut rates sooner rather than later.
“For anyone with a remortgage looming, this should help take the pressure off. For anyone affected by job losses, it’s an altogether different picture. These aren’t just numbers, they are real people thrown into financial disarray.”
