Kristina Roberts
The UK labour market continues to show signs of strain, with hiring slowing, unemployment edging higher, and wage growth remaining stubbornly strong.
Data for July to August revealed 119,000 fewer vacancies compared to a year earlier, marking the 38th consecutive monthly decline. The unemployment rate rose to 4.7%, its highest level in four years, with 2.3 unemployed people for every vacancy. While economic inactivity fell to 21.1% as more people rejoined the workforce, many are still searching for jobs rather than finding employment.
Young workers have been hardest hit since Chancellor Rachel Reeves introduced £40bn in tax hikes, including a sharp rise in employer National Insurance contributions in April. Official figures show 51,000 fewer under-25s in payrolled jobs between April and August 2025, while under-30s claiming out-of-work benefits increased by 66,000 since the general election.
Employers have warned that the tax rises, alongside a higher minimum wage, have pushed labour costs up significantly, with the British Retail Consortium estimating a £5bn impact on the retail sector this year. Businesses have responded by cutting jobs and slowing recruitment.
Economists now expect Reeves to announce further tax increases in her November 26 budget to address a growing hole in public finances, sparking concerns of even deeper job losses. Wage growth, excluding bonuses, held firm at 4.8% in the three months to July, raising fears of persistent inflation and adding pressure on the Bank of England ahead of its interest rate decision.
Ben Gregg of the Centre for Social Justice warned that many young people are turning to mental health benefits amid a “toxic mix of rising employment costs and increased competition for entry-level roles,” urging the government to take urgent action to reverse the trend.
