Businesses ‘feeling the heat’ despite wage growth easing
Businesses ‘feeling the heat’ despite wage growth easing
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The number of payrolled employees in the UK fell by 149,000, or 0.5%, between June 2024 and June 2025, according to new figures from the Office for National Statistics (ONS). On a monthly basis, the number was down by 26,000 (0.1%) between May and June 2025.
When measured over the April to June 2025 period – which aligns with the ONS Labour Force Survey (LFS) – payrolled employees declined by 110,000 (0.4%) year-on-year, and by 66,000 (0.2%) compared with the previous quarter.
The early estimate for July 2025 suggests the total number of payrolled employees stood at 30.3 million – down 164,000 (0.5%) from a year earlier and 8,000 (0.0%) from June. The ONS stressed that the July figure is provisional and could be revised next month when more data becomes available.
ONS data showed the UK employment rate for people aged 16–64 was 75.3% in April to June 2025, higher than a year ago and up on the previous quarter. The unemployment rate for people aged 16 and over rose to 4.7%, also higher on both the year and the quarter.
Economic inactivity among 16–64-year-olds fell to 21.0%, down on both the year and the quarter.
The UK Claimant Count, a measure of people claiming unemployment-related benefits, dropped to 1.695 million in July, falling on both monthly and annual comparisons.
Vacancy levels continued their long-running decline, with the estimated number of job openings falling by 44,000 (5.8%) in the May to July 2025 period to 718,000. This marks the 37th consecutive quarter-on-quarter drop in vacancies, with declines reported in 16 out of 18 industry sectors. The ONS said feedback from its Vacancy Survey suggested many employers are not recruiting new staff or replacing those who leave.
In April to June 2025, regular pay (excluding bonuses) in Great Britain grew by 5.0% year-on-year, while total pay (including bonuses) increased by 4.6%. Public sector regular pay growth stood at 5.7%, compared with 4.8% in the private sector.
When adjusted for inflation using the Consumer Prices Index including owner occupiers’ housing costs (CPIH), regular pay grew by 0.9% in real terms and total pay rose by 0.5%. Using the CPI measure, the real-terms increases were 1.5% and 1.1% respectively.
The pace of wage growth remains a key focus for the Bank of England as it weighs up further interest rate cuts.
Jane Gratton, Deputy Director of Public Policy at the British Chambers of Commerce (BCC), said: “With businesses feeling the heat from a raft of cost-pressures, a larger easing of average earnings, including bonuses, to 4.6% in June will be welcomed.
“Continued wage growth is creating real challenges for business and the wider economy. It’s an important factor behind persistent services inflation, as the Bank of England Governor told our conference in June. That’s why employers and the Bank will be watching the path of annual earnings very closely, as further interest rate cuts are considered.
“It’s also impacting on job opportunities. While unemployment remains fairly stable, we know many businesses have held back on recruitment and others have shed jobs – following the national insurance hike earlier this year. Labour costs remain the biggest cost pressure for firms, cited by 73% of respondents in our latest survey.
“There is a limit to how many additional costs businesses can absorb. It’s crucial that there are no more taxes on business in the forthcoming budget. Whether it’s young people entering the labour market, people looking to return to work, or those wishing to develop in their career – they all rely on thriving businesses. The government must help, not hinder, businesses to attract and retain the people and skills needed to grow our economy.”
Gus Williams, interim CEO of Chambers Wales, said: “We knew that the NI and National Minimum Wage changes were going to dent hiring in the first half of this year as businesses held off to see how the economy and their margins held up. It looks to have hit entry level recruitment particularly hard which is a concern for the long term. Improving pathways from education to employment should be a priority for the government.
“Looking at a broad array of measures, businesses remain in a holding pattern regarding the economy. Optimism has crept up a little, probably due to the fact that all the geopolitical turmoil has not been as disastrous as many feared, but it’s not over yet. Saving rates are above pre-pandemic levels, people are cautious about spending and the ageing population is acting as a longer term brake on consumer spending.
“Business administrations remain slightly below last year, the good weather may provide a short term boost – but also could impact food inflation as the weather is having a huge impact on crop yields. It’s a very mixed bag, there is resilience out there and some pent up demand but the uncertainty and risks just aren’t going away to allow consumers and businesses to give the economy that spending and investment boost it needs.”
The ONS noted that data from January to March 2025 fully reflects changes to LFS data collection and sampling methods introduced in January 2024. While these improvements are expected to increase accuracy over time, the statistics agency warned that volatility will persist in LFS estimates for mid-2023 through 2024.
It advised that the LFS should be interpreted alongside other labour market indicators, including workforce jobs data, Claimant Count figures and PAYE Real Time Information (RTI) estimates.
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