Could a slight economic contraction signal a new phase of growth? January 2025’s ONS figures show that the UK economy shrank by 1% last month—a sign of slowing growth, yet one that may also open up fresh opportunities. Remember too, this was only a one month measure, we will need to see more data in the next few months to really see a clear picture.
Recent data reveals that between November 2024 and January 2025, job vacancies fell by 1.1% to 819,000. This marks the 31st consecutive quarter of decline and an 11.8% drop compared with the previous year. Despite these falls, total vacancies remain 2.9% above pre-Covid levels, suggesting that the demand for skilled workers still holds firm even as hiring slows. In other words, despite a cooling in hiring activity, employers are still actively seeking talent to fill critical roles.
On the wage front, the news is somewhat brighter. Nominal annual pay, excluding bonuses, increased by 5.9% between October and December 2024. Once inflation of 2.5% is factored in, this equates to a healthy real wage boost of 3.4%. In the private sector, wages rose by 6.2%, compared to a 4.7% rise in the public sector, helping to support consumer spending even as other parts of the economy contract. This not only supports consumer spending—a key engine of economic growth—but also signals that businesses are willing to invest in their workforce despite broader economic challenges.
There are clear differences between sectors, too. While industries such as retail, hospitality, and motor vehicle repairs have seen significant drops in vacancies, some areas are faring better. Vacancies in public administration and defence are up by about 15,000 compared with pre-pandemic levels, and construction shows an increase of roughly 13,000 roles. These sectors, buoyed by government investment and ongoing infrastructure projects, offer a hint of resilience and potential growth.
Business sentiment remains cautious. Many employers are planning to cut back on recruitment in the near term due to rising costs and the expected increase in National Insurance Contributions—from 13.8% to 15% on lower salary bands. However, there is a shift towards more efficient hiring methods. Digital recruitment tools are already reducing time-to-hire by up to 20%, helping firms to respond quickly to changes in the market and tap into new talent pools, particularly in tech and healthcare.
Despite the slowdown, the unemployment rate has steadied at 4.4%, and the ratio of unemployed persons per vacancy has nudged up slightly from 1.8 to 1.9. These figures suggest that while the market is tightening, there remains a pool of capable jobseekers.
So, while the 1% contraction in January may seem like a setback, it also highlights areas where opportunities lie. As hiring slows in some sectors, others—especially those supported by public spending and modern recruitment technologies—are emerging as bright spots. With wages still growing and businesses adapting to new challenges, the UK labour market is at a crossroads.
With the 1% monthly contraction behind us, and vacancies still strong alongside rising wages, can these trends spark a turnaround in our labour market?
By John Salt
