(Aug 18): UK employers shed more workers in July and job vacancies hit a fresh five-year low as demand for staff remained tepid in the face of heightened uncertainty from events at home and abroad.
The number of employees on company payrolls dropped 13,000 in July after a similar fall the previous month, data from the Office for National Statistics showed on Tuesday. Economists surveyed by Bloomberg had expected no change.
Job vacancies dropped further to 707,000 in the May to July period, the lowest since 2021. Private sector wage growth, excluding bonuses, the gauge watched closely by the Bank of England for signs of inflationary pressures, eased to 2.8% in the second quarter, the lowest in almost six years.
While some recent data have pointed to stabilisation in the jobs market, employers seem reluctant to hire amid heightened uncertainty over the Iran war and the first budget under new UK Prime Minister Andy Burnham later this year.
The pound and market bets on a one-quarter-point interest-rate hike by the end of the year were little changed. However, economists generally expect the BOE to keep rates on hold.
“This supports our view that the labour market is not conducive of second-round inflation effects and the Bank of England won’t raise interest rates from 3.75%,” said Ashley Webb at Capital Economics. “All this paints a picture of a weak labour market that continues to loosen.”
Unemployment held steady at 4.9% in the three months through June, though the statistics office has warned that the figures remain of reduced quality due to an error made in collecting the data. The jobless rate among 16-24-year-olds edged down to 16.2% but remained near levels last seen more than a decade ago.
July marked the latest decline in payrolls after almost two years of steady job losses blamed on a weak economic backdrop combined with the Labour government’s increases in payroll taxes and the minimum wage. BOE Governor Andrew Bailey has characterised the UK as a “low hire, low fire economy”, a lacklustre backdrop that rate-setters hope will prevent inflation caused by the Iran war from lingering.
ONS director of economic statistics Liz McKeown said some softening in the labour market is “still evident”. She said the fall in vacancies “was driven mainly by smaller businesses, which cite labour and operating costs as reasons for not hiring new staff or replacing leavers.”
While private-sector pay growth is well below the 3.25% the BOE deems compatible with its 2% inflation target, overall regular pay growth was up slightly at 3.5%, driven by a 6.1% jump in public-sector wages. That was affected by base effects caused by some National Health Service pay increases being paid earlier in 2026 than in 2025.
Real regular pay growth picked up to 0.7% in the three months through June, up from 0.4% previously and the fastest pace this year, as lower inflation gave workers a boost.
Three of the BOE’s nine rate-setters argued for an immediate increase last month to head off the threat of knock-on effects from the energy-price shock. Figures on Wednesday are expected to show the ongoing risk, with inflation seen spiking higher in July on the back of a 13% increase in the UK’s energy price cap.