UK Labour Market Holds Strong Despite Slower Pay Growth

The latest data shows that the UK labour market continues to perform steadily in 2025, with employment levels holding firm and job vacancies remaining historically high. While pay growth has slowed slightly, overall workforce activity remains strong, supported by high participation and resilient hiring demand.

Liz Jones, Recruitment Director at people2people UK, says that this steady picture aligns closely with trends identified in the firm’s 2025 UK Market Report.

“We are still seeing a healthy labour market,” she explains. “Employment is growing, and job openings remain strong, especially in sectors such as healthcare, logistics and professional services.”

Employment Rate Rises, Unemployment Falls

According to the July 2025 bulletin, the UK employment rate rose to 76.4 percent, the highest in over a year. The unemployment rate dropped to 3.7 percent, a level not seen since early 2020. This marks continued improvement in labour force participation following a volatile period during the pandemic recovery.

Jones notes that this trend is being felt across multiple industries.

"Businesses are rebuilding workforces and candidates are returning to the labour market," she says. "It is encouraging to see stronger engagement from both employers and jobseekers."

Pay Growth Slows but Remains Positive

One notable shift in the July update is a softening of pay growth. Annual wage increases for the period stood at 5.2 percent, down from 6.1 percent earlier in the year. This reflects a more balanced economic climate as inflation eases and employers stabilise budgets.

“While pay growth is slowing, it is still above historical averages,” Jones comments. “Employers are adjusting to cost pressures, but most remain committed to offering competitive salaries to retain talent.”

Vacancies Stay High, Reflecting Continued Demand

Despite slower wage growth, the number of job vacancies remains elevated. Sectors such as care, education, and IT continue to post consistent hiring demand, with temporary and contract roles seeing a modest rise in 2025.

“Our market report shows that employers are being more selective, but they are still hiring,” says Jones. “The competition for skilled talent is keeping demand steady, especially for roles that require specialist expertise or qualifications.”

Implications for Employers

With a stable employment base and slower but sustained pay growth, Jones suggests that now is a critical time for companies to refine their recruitment strategies. She recommends:

• Reviewing salary benchmarking to stay competitive in priority roles
• Streamlining recruitment processes to reduce vacancy durations
• Investing in retention through training and internal mobility
• Enhancing employer branding to attract passive candidates

“The market is not slowing down,” she says. “It is settling. Employers who respond with clarity and flexibility will continue to secure great talent.”

Summary

The July 2025 labour market update confirms a period of stability for the UK workforce. While pay increases are moderating, employment levels remain high and hiring activity continues across core sectors. For recruitment leaders, this is a time to invest in strategy, not to pull back. With the right planning, employers can navigate this market with confidence.