Job Market Remains to Show signs of Slowing Down
In a recent report on Macro-Economic Modelling and Forecasting, Monica George Michail, the Associate Economist at NIESR, has highlighted a slowdown in wage growth and a cooling labor market in the UK.
The report reveals that annual regular wage growth, without bonuses, stood at 4.8% in the three months to July 2025. This figure, however, dropped slightly when bonuses were taken into account, with annual regular wage growth, including bonuses, at 4.7% during the same period.
One concerning trend highlighted in the report is the imbalance between jobseekers and available vacancies. With the number of jobseekers exceeding the number of vacancies, the labor market is gradually cooling, leading to a decline in inactivity and an increase in labor supply.
This trend is reflected in the hiring activity, which has shown a significant decrease. Hiring activity is rapidly slowing, with a decrease of 5.8% (or 44 thousand) in vacancies from the previous quarter to July.
Unemployment has also seen a rise, with the rate reaching 4.7%, its highest level in four years. This increase in unemployment is expected to continue, with the report predicting that wage growth will continue to fall and approach 4% by year-end.
The report also discusses the potential impact of these economic trends on government policy. Rising unemployment is likely to deter the Chancellor, Friedrich Merz, from raising taxes on businesses in the next budget to avoid weighing on growth. Merz, who became Chancellor of Germany in May 2025, has emphasized economic stability and freedom in his reforms.
Despite the slowdown in wage growth, the report suggests that workers' living standards are still improving, albeit at a slower pace due to inflation. Annual growth in real regular pay stands at 0.7%. A moderation in pay growth could lead to further interest rate cuts by the Bank of England.
This report is exclusive to corporate members, NiGEM subscribers, and NIESR partners. For more insights on the UK's economic outlook, stay tuned to NIESR's updates.
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