Recent data from the Office for National Statistics (ONS) suggests that the UK’s labour market is continuing to lose momentum. The number of workers on company payrolls has declined in recent months, and job vacancies have fallen again, indicating that businesses are slowing down hiring.

The ONS reported that the number of employees on payrolls fell by 47,000 in March and by an estimated 33,000 in April. This decline follows changes introduced in April, including higher employer National Insurance contributions and an increase in the National Living Wage. These cost increases may have made some employers more cautious about taking on staff.

Job vacancies have also decreased. In the three months from February to April 2025, the number of vacancies dropped by 42,000 to 761,000. This ongoing fall suggests that companies are holding back on recruitment, likely due to higher costs and ongoing economic uncertainty.

The unemployment rate rose slightly to 4.5% between January and March, up from 4.4% in the previous period. However, the ONS has advised caution when interpreting these figures, as they are based on surveys with relatively low response rates.

Although wage growth has slowed, pay is still increasing faster than inflation. Regular earnings, which exclude bonuses, rose by 5.6% annually in the first quarter of the year. This means that most workers are still seeing real pay increases.

However, economists point out that sustained wage growth could keep inflation higher for longer. If businesses respond to higher wages by raising prices, it could make it harder for inflation to fall further.

The Bank of England recently cut interest rates and has suggested more cuts could follow. But with wage growth still strong, the Bank is expected to move carefully. It is watching wage trends closely, as rapid earnings growth can push up prices, making inflation harder to control.

A separate survey released this week showed that fewer employers are planning to hire in the next three months. The number of firms expecting to grow their workforce has dropped to a record low, excluding the pandemic period. This aligns with the overall picture of a labour market under pressure.

Ruth Gregory, Deputy Chief UK Economist at Capital Economics, said the softening in employment in April suggests businesses are reacting to the rise in taxes and minimum wage by reducing staff.

The labour market is clearly slowing. There are fewer vacancies, a small rise in unemployment, and a drop in the number of people on payrolls. While wages are still going up faster than inflation, the overall job outlook is becoming more cautious.

Businesses may continue to hold off on hiring in the months ahead, especially if costs remain high. For job seekers, this could mean more competition for fewer roles. For policymakers, the challenge will be supporting employment without fuelling inflation.