Employment in the UK has declined again, with job losses concentrated in retail and hospitality, while wage growth in the private sector has slowed to its weakest pace in five years, according to new official figures.
Data published by the Office for National Statistics (ONS) shows the number of employees on payrolls fell by 43,000 in December compared with the previous month, taking the total to 30.2 million. It was the largest monthly fall since November 2020, during the Covid pandemic.
The figures underline a weakening labour market, with employers becoming more cautious about hiring amid rising costs, policy uncertainty and slower economic growth.
Unemployment remains elevated
The unemployment rate held steady at 5.1% in the three months to the end of November, its highest level in four years. That compares with 4.4% a year earlier. The single-month rate for November rose to 5.4%, the joint highest level recorded in more than five years.
Unemployment now stands at around 1.8 million people, reflecting a significant deterioration over the past year as job vacancies have declined and employers have scaled back recruitment.
The ONS said the slowdown in hiring has been particularly pronounced in shops, restaurants, bars and hotels, sectors that are sensitive to changes in consumer spending and business costs.
Wage growth eases
Wage growth also showed signs of cooling. Regular pay excluding bonuses rose by 4.5% in the three months to November, down from 4.6% in the previous quarter. Including bonuses, earnings growth slipped to 4.7% from 4.8%.
Private sector regular earnings, a closely watched indicator for the Bank of England, slowed to 3.6%, its lowest rate in five years. Public sector pay growth, by contrast, remained elevated, reflecting the impact of pay settlements agreed earlier than in the previous year.
Liz McKeown, the ONS director of economic statistics, said the figures pointed to continued weakness in hiring. She noted that reductions in payroll numbers over the past year were concentrated in retail and hospitality, while overall wage pressures in the private sector were easing.
Impact of recent policy changes
Economists and business groups have linked the softer labour market to rising costs for employers. Retail and hospitality firms have been among the most vocal critics of recent policy changes announced by the chancellor, Rachel Reeves, including increases in employers’ national insurance contributions and the minimum wage.
Changes to business rates have also weighed heavily on pubs and hospitality businesses. The government is finalising a support package that is expected to include reductions in business rates for pubs, which otherwise face an average rise of 76% over the next three years.
Employers have become more reluctant to retain staff or advertise new roles, with some businesses reassessing expansion plans in response to higher operating costs and uncertainty around future tax and regulatory policy.
Businesses across multiple sectors have warned that higher employment costs are affecting pricing, investment plans and marketing budgets, particularly for customer-facing roles.
Vacancies stabilise but remain low
There was a slight increase in job vacancies in the latest data, but the overall number has remained broadly flat over the past six months after a prolonged decline. Vacancies are now below their average level before the Covid pandemic, signalling a more subdued demand for labour.
Despite this, more people are entering or re-entering the workforce. The share of working-age adults classed as economically inactive is close to a six-year low, even though sickness-related inactivity remains historically high.
Martin Beck, chief economist at WPI Strategy, said the rise in labour supply was a positive sign for the economy’s long-term capacity, though it comes at a time when demand for workers is weakening.
Industrial action and lost working days
The data also showed 155,000 working days were lost to labour disputes, the highest number since January 2024. More than half of those days were lost in the health and social work sector, largely due to strikes by resident doctors in England.
Industrial action has added to pressures on public services and highlighted ongoing tensions over pay and working conditions, particularly in sectors facing recruitment and retention challenges.
Global factors and structural shifts
Employers’ caution has also been shaped by global uncertainty. Trade tensions linked to tariff measures introduced by the US earlier in the year have dampened investment appetite among large corporations, while geopolitical risks continue to weigh on confidence.
At the same time, structural changes in the economy are influencing hiring patterns. The rapid growth of artificial intelligence has created new roles in parts of the technology sector but has also prompted some employers to reconsider entry-level recruitment, particularly for school leavers and graduates in white-collar occupations.
Jake Finney, a senior economist at PwC UK, said younger workers are often the most affected when labour market conditions soften, as firms scale back hiring and focus on retaining experienced staff.
Interest rate outlook
Financial markets expect the Bank of England to respond to the weaker labour market and easing inflation pressures by cutting interest rates at least twice this year, from 3.75% to around 3.25%.
Economists said the latest employment figures were unlikely to prompt an immediate change in policy, with a rate cut later in the spring seen as more likely if the slowdown persists.
What this means
The latest data confirms that the UK labour market is losing momentum, with employment falling, wage growth easing and vacancies remaining subdued. While an expanding workforce offers some longer-term benefits, weaker hiring and rising unemployment pose challenges for households and policymakers alike. How the government balances support for employers with efforts to protect living standards will be central to the economic outlook in the months ahead.
