ONS Labour Market Data, May 25. Is the UK Labour Market at a Crossroads?

The May 2025 ONS Labour market overview for the UK was released today.

Employment Rates

The UK employment rate for people aged 16 to 64 years was estimated at 75.0% in January to March 2025. This is above estimates of a year ago, but largely unchanged in the latest quarter. The current Government’s target employment rate is 80% (with a 75% employment rate from January to March 2025).

The UK unemployment rate for people aged 16 years and over was estimated at 4.5% in January to March 2025. This is above estimates of a year ago, and up in the latest quarter.

The UK economic inactivity rate for people aged 16 to 64 years was estimated at 21.4% in January to March 2025. This is below estimates of a year ago, and down in the latest quarter.

The UK Claimant Count for April 2025 increased on the month and the year, to 1.726 million.

The estimated number of vacancies in the UK fell by 42,000 on the quarter, to 761,000 in February to April 2025. This was the 34th consecutive quarterly decline with quarterly falls seen in 13 out of the 18 industry sectors. Vacancies were 34,000 below their January to March 2020 level.

Estimates for payrolled employees in the UK decreased by 47,000 (0.2%) between February and March 2025 and fell by 63,000 (0.2%) between March 2024 and March 2025.

Payrolled employees fell by 53,000 (0.2%) over the quarter and fell by 4,000 (0.0%) over the year, when looking at January to March 2025. This is the period comparable with our Labour Force Survey (LFS) estimates.

The early estimate of payrolled employees for April 2025 decreased by 33,000 (0.1%) on the month and decreased by 106,000 (0.3%) on the year to 30.3 million. The April 2025 estimate should be treated as a provisional estimate and is likely to be revised when more data are received next month.

LFS estimates from January to March 2025 include the full effect of recent improvements in LFS data collection and sampling methods introduced from January 2024, and are therefore more likely to be representative of labour market conditions. An increased amount of volatility will remain in the LFS estimates from mid-2023 and throughout 2024, ONS have advised caution when interpreting change involving those periods. We recommend using LFS estimates as part of a suite of labour market indicators, alongside Workforce Jobs, Claimant Count and Pay As You Earn Real Time Information (PAYE RTI) estimates.

Annual growth in employees’ average regular earnings excluding bonuses in Great Britain was 5.6% in January to March 2025, and annual growth in total earnings including bonuses was 5.5%. RTI pay data showed a similar annual growth rate when compared with Average weekly earnings total earnings, including arrear payments.

There were an estimated 55,000 working days lost because of labour disputes across the UK in March 2025.

Sector Reaction:

Ben Harrison, Director of the Work Foundation at Lancaster University, a leading think tank for improving working lives in the UK:

“Today’s figures suggest the UK labour market is approaching a crossroads. Headlines indicate employment remains resilient and pay growth continues to be strong, while more of those who have been economically inactive are now looking for work. However, vacancies are continuing their long-term decline, which may make returning to the labour market more challenging.

“As the Government aims to grow the employment rate to 80%, there has been a slight uptick in the employment rate to 75% on the year. However, provisional estimates from the ONS indicate the number of payrolled employees may have actually fallen in the first quarter of 2025.

“It does appear that with economic inactivity falling and unemployment rising to 4.5% that some of these people are beginning to search for work. And there are over 200,000 more people in economic inactivity stating they want to work compared to a year ago, making nearly two million in total. While Government reforms and investment in tailored employment support are welcome, looming benefit cuts could have the unintended consequence of making it harder for some disabled people to stay in or access work.  

“This could be compounded as the number of jobs advertised has fallen to 761,000, a drop of 40,000 on the quarter – the largest for over a year. This leaves jobseekers facing the most competitive labour market for nearly four years, with a job vacancy for every two jobseekers.

“For those in work, there is continued strong nominal pay growth – now at 5.6%. Official data shows that pay growth is in its longest consecutive period of growth since records began in 2001, with 33 months of pay growth above 5%. There has been particularly strong growth in low paying sectors such as wholesale, retail and hospitality at 7.4% while high paying sectors such as business and finance lag behind on 4.0%.

“However, the drop in vacancies cannot be solely attributed to employer costs rising and there are wider factors at play. For instance, in the retail sector there are 30,000 fewer vacancies than before the pandemic in January to March 2020 but the sector has undergone huge change since that time, including a shift to online shopping and increasing automation in stores.”

Responding to the latest ONS figures, Stephen Evans, chief executive of Learning and Work Institute (L&W), said:

“The labour market continues to slow, with the largest employment falls seen in retail and hospitality. Pay growth is fastest in those sectors as the rise in the minimum wage takes effect. That, along with rises in national insurance and other changes, may show the pressures employers are facing. Time will tell whether this is an indicator of a broader slowdown or a temporary effect.”

The ONS published its latest labour market figures this morning. The Recruitment and Employment Confederation (REC) Deputy Chief Executive Kate Shoesmith said:

“Today’s data mirrors the picture we are seeing across our own and others’ jobs reports. While there are few surprises, the lack of momentum in the jobs market is the key issue here, with vacancies falling back further – an expected outcome after recent rises to employment costs. But much of the data now also points towards an upturn in the second half of 2025 – and not before time.

“The Minister is right to call out two things: the need for workers and business investment. The labour market is the engine that will drive productivity and growth. If the government are to achieve their goal of 80% employment, they will need to come good on both of these.

“Employers’ ears will turn to the remaining stages of the Employment Rights Bill in Parliament which desperately requires amendments to address employers’ fears and boost hiring. Reducing the bureaucracy for firms in complying with the Bill will significantly calm nerves about dipping toes into the job market.”

Unemployment rate for people aged 16-24 not in full-time education has increased from 11.7% to 12.6%.

Dr Andrea Barry, Prinicipal Economist at Youth Futures Foundation, comments:

“Today’s ONS labour market data indicates that youth unemployment continues to rise. Over the last year, the unemployment rate for people aged 16-24 not in full-time education has increased from 11.7% to 12.6%. This signifies that an additional 29,000 young people are unemployed.

“This continued rise in youth unemployment is concerning. We must address the challenge urgently to prevent a generation of young people from being locked out of the labour market.

“Analysis shows that if we were able to tackle the issue like in the Netherlands, who have the lowest NEET rate in the OECD, we could add £69bn to our economy and see 500,000 additional young people enter employment.”

Jack Kennedy, Senior Economist at Indeed said:

“The labour market slowed further in April as it was hit by the double whammy of a spike in tariffs-related uncertainty and with the policy-driven hike in employment costs taking effect. Though the trade situation has calmed somewhat, with the US-UK trade deal easing concerns in the most exposed sectors like cars and steel, general business confidence has taken a bruising lately. The concern remains that lingering uncertainty will drag on hiring, with questions over the shape of the government’s Employment Rights Bill presenting a further headwind to an already fragile recruiting landscape. 

“Wage growth eased further in the three months to March and is gradually coming off the boil, though remains too hot for the MPC’s liking. A more material and sustained cooling of wage pressures would open the door to faster interest rate cuts, but the Monetary Policy Committee’s split vote in May underlines the continued caution over persistent inflation pressures. 

“Meanwhile, the government’s tightening of visa rules comes against the backdrop of already falling foreign interest in UK jobs, with high skilled occupations having seen the biggest recent declines. That’s likely to spell difficulties for employers grappling with persistent recruitment challenges in sectors like engineering and healthcare. “