A key contradiction defines the UK labour market as we head into February 2025: strong wage growth alongside declining vacancies.
While the headline unemployment rate remains relatively stable, a deeper dive into the latest ONS data reveals a concerning trend: the 31st consecutive quarterly decline in job vacancies. This sustained downward movement, coupled with other economic indicators, begs the question: is the historically resilient UK labour market on the verge of a more significant shift?
The ONS reports a 1.1% decrease in vacancies between November 2024 and January 2025, bringing the total to 819,000. This decline, though seemingly small, is significant because it’s widespread. Eleven of the 18 industry sectors have seen reductions, with the most dramatic falls in electricity, gas, steam, and air conditioning supply (14.6%) and wholesale and retail trade (8.3%). These figures underscore a cooling demand for labour across key sectors of the economy. While total vacancies remain 2.9% above pre-pandemic levels, the persistent downward trajectory raises concerns about future hiring intentions.
Real wages continue to grow, outpacing inflation. Nominal annual pay growth (excluding bonuses) reached 5.9% between October and December 2024, translating to a 2.9% real wage increase year-on-year. This positive trend, driven primarily by the private sector, could support consumer spending and offset some of the negative effects of declining vacancies. However, it also presents a challenge for businesses already grappling with rising costs and may not entice the Bank of England to make those two further rate cuts in 2025 we need to fuel growth.
Business sentiment appears to be shifting. Surveys from organisations like the CIPD and FSB suggest growing caution amongst employers. Many are considering reducing headcount or scaling back recruitment plans in anticipation of a tougher economic climate. This hesitancy is further compounded by upcoming increases to National Insurance Contributions and minimum wage, placing additional pressure on businesses, particularly in sectors like retail and hospitality.
While the current data paints a mixed picture, the consistent decline in vacancies, coupled with rising business costs and cautious hiring intentions, suggests that the UK labour market may be approaching a tipping point. Whether this becomes a full-blown crisis or a more moderate adjustment remains to be seen. Close monitoring of key indicators, including vacancy rates, unemployment figures, interest rates and business sentiment, will be crucial in the coming months to assess the true direction of the UK’s employment landscape. The key question remains: is this a temporary lull or the beginning of a more profound transformation?
