Wage growth is easing as heightened business costs constrain the UK’s jobs market, new labour market data shows.
Wage growth in the UK slowed to 5.2% in the three months to April 2025, down from 5.6% last month and 5.9% the month before.
When including bonuses, earnings grew marginally faster at 5.3%, remaining slower than in previous months, according to new data released by the Office for National Statistics (ONS).
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Adjusting for inflation, wages in Britain still saw real-terms pay growth of 2.1% excluding bonuses and 2.3% when including them.
Though inflation-busting pay growth will be welcomed by workers, real-terms pay growth in April was the lowest recorded this year.
The public sector saw much stronger wage growth than the private sector, with earnings growing in the former by 5.6% and 5.1% for the latter.
Like last month’s data, the sectors that saw the strongest annual growth rate was the wholesaling, retailing, hotels and restaurants sector – where pay grew by 7.7% in the three months to April. This was followed by the construction sector, where pay grew by 5.9%.
Alice Haine, personal finance analyst at Bestinvest, said easing wage growth “isn’t the best news for consumers still struggling with high living costs” as inflation continues to creep up.
She added: “While pre-tax headline incomes are stretching further than they did 12 months ago, households would be wise to tread carefully when it comes to their personal finances.”
“Pay growth could slow further in the coming months if the Chancellor’s new tax measures on businesses and US president Donald Trump’s tariff policies dampen economic growth as expected.”
The UK lost over 100,000 payrolls in May
New labour market data shows that heightened business costs are constraining the UK’s jobs market as measures imposed by Rachel Reeves’s 2024 budget came into effect at the start of the new tax year.
The number of payrolled employees in the UK fell by 55,000 (0.2%) between March and April 2025, down by 115,000 (0.4%) on the year, ONS data shows.
Early glimpses for May’s data spell worse news.
The ONS’s early estimate for May’s data shows Britain shed 109,000 (0.4%) employees between April and May alone, bringing the total number of payrolls decline by 274,000 (0.9%) on the year.
The more than 100,000 decline in payrolls that are estimated in May would mark the biggest decline in five years since May 2020.
Meanwhile, the unemployment rate is the highest it has been in nearly four years, rising to 4.6% in the three months to April 2025, higher than in the last period.
The jobs market is also flagging, according to the ONS’ data.
The number of jobs in Britain took a steep tumble as the number of vacancies fell by 63,000 in the three months to May, the 35th consecutive quarterly decline.
With such a prolonged decline, the ONS says UK vacancies are now 59,000 below the level they were at in the first three months of 2020, before the Covid-19 lockdown.
When paired with the claimant count and unemployment rate, the ONS estimates there were 2.2 unemployed people per vacancy in the three months to April, up from 1.9 in the three months to January 2025.
The dismal labour market data shows “the increase in employment costs for business appears to be starting to bite,” according to Jane Gratton, deputy director public policy at the British Chambers of Commerce.
Gratton said the 2024 budget’s increases to employer national insurance contributions and an increase in the minimum wage “have undoubtedly delivered a shock to businesses.”
She said the ONS’s data showing falling vacancies suggests, “due to increased employment costs, many firms are now freezing recruitment plans, while others are being forced to reduce headcount”.
Is the UK at risk of stagflation?
With turbulence in the jobs market and the highest fall in payrolls in five years being reported, fears of stagflation have been stoked among many analysts.
Stagflation is an economic situation where a country has very low or negative economic growth at the same time as high inflation and high unemployment.
In terms of economic growth, the UK’s GDP readings have been anaemic for years now. This trend was somewhat bucked last month when data showed that the British economy grew by 0.7% in the first quarter of 2025, but it is unclear whether this can continue.
As for inflation, it is no secret that it has remained stubbornly high for years now. In April, the ONS’s official reading for CPI inflation was 3.5%, above the Bank of England’s 2% target.
Since the start of 2025, the central bank has said it expects inflation to remain higher than the target for the entirety of the year (possibly reaching 3.75%), before falling to the 2% target at the start of 2026.
The final member of the woeful trifecta, high unemployment, has long been the economic statistic that bucked the trend. But with new data showing that unemployment is on the rise and vacancies are falling, it could become a cause for real concern.
This being said, although the UK economy is certainly a worry among policymakers, to say that it was in a state of stagflation would be an overstatement.
However, that is not to say that it is impossible. If the economy remains stagnant, inflation refuses to come down, and the labour market keeps shedding jobs, the risk of stagflation will become much more real.
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