What’s happening with UK pay and employment?

For those in work, the latest labour market data are fairly encouraging. Pay is growing faster than prices, with annual real wage growth at just over 2%, according to new figures from the Office for National Statistics (ONS).
But the picture is less promising for people currently out of work: vacancies are down and redundancies are up. And with various fiscal policy changes – such as the increase in employer national insurance contributions (NICs) – due to come into effect in April 2025, employment prospects for workless people could continue to dip.
Turning to the data, the overall number of people in work in the UK has risen in recent months. Between November 2024 and January 2025, the national total of employees aged 16 and over reached 33.9 million – an increase of 59,000 compared with the previous month, and 608,000 more than a year ago (November 2023 to January 2024).
At 75%, the employment rate for 16-64-year-olds remains stable – and the unemployment rate has held steady for the third consecutive month, at 4.4% (although the rate this time last year was slightly lower, at 4.1%).
Provisional estimates for February 2025 indicate that the number of payrolled employees stood at 30.4 million – an increase of 67,000 over the past year (see Figure 1). Compared with the previous month, payrolled employees rose by 0.1% in February 2025 – an increase of 20,500 people.

Average weekly earnings for both total and regular pay continued to rise, reaching £711 for total pay and £667 for regular pay (which excludes bonuses).

Figure 1: Average weekly earnings, total and regular pay

Source: Author’s calculations using ONS labour market data

This steady increase has persisted in the medium term, with positive annual average nominal wage growth over the past four years (see Figure 2). Continuing this trend, in January 2025, nominal wages increased by approximately 6% for both total and regular pay. This was primarily driven by the private sector, where regular nominal earnings rose by an average of 6.1% (led by the construction and wholesale sectors, at 6.2% and 6.3%, respectively). In contrast, public sector pay grew by 5.3%.

Real wage growth – which takes account of inflation – was negative from late 2021 to the middle of 2023. This means prices were growing faster than wages for around 18 months. Since then, the data show a return to positive real-terms pay growth. This trend has continued, with the latest numbers showing a real wage increase of just over 2% for both total and regular earnings (see Figure 2).

Figure 2: Annual growth rate average weekly earnings, total and regular pay

Source: author’s calculations using ONS labour market data

But the upcoming increases in both NICs and the minimum wage in April 2025 seem to be shaping hiring decisions. While pay growth remains steady and unemployment appears stable, vacancies continue to decline, while redundancies have kept rising.

Starting with vacancies, the number of new jobs was 816,000 between December and February 2025 – an 11% drop compared with the same period last year, and 0.6% lower than the previous quarter (see Figure 3). The sustained decline in total vacancies has brought the number back at pre-pandemic levels (the total was 816,000 between November 2019 and January 2020).

Redundancies have also risen for the fifth consecutive month. Between November 2024 and January 2025, a total of 124,000 people were made redundant – an increase of 10,000 compared with the previous month. But this number remains lower than in the same period last year, when redundancies totalled 133,000 (see Figure 4). (Note: the redundancy level is the number of people who were made redundant in the three months prior to interview, a total that is not seasonally adjusted).

Figure 3: Total vacancies, 2019-25

Source: Author’s calculations using ONS labour market data

Figure 4: Redundancies levels, 2019-25

Source: Author’s calculations using ONS labour market data

Despite this gloomy picture, the UK labour market continues to perform relatively well in comparison with the rest of the G7 (see Table 1). In terms of the employment rate, at 75% the UK is in the top three, behind only Japan and Germany. And with an unemployment rate of 4.4%, the UK ranks fourth, behind Japan, Germany and the United States, but ahead of France, Italy and Canada.

Table 1: Labour market statistics by G7 country

Source: Author’s calculations using ONS labour market data
Note: Lower age limit for the UK and United States is 16 rather than 15.

With the Treasury’s spring statement delivered this week, as well as various fiscal measures due to come into effect in April, policy-makers are waiting apprehensively to gauge the impact of government policy on the UK labour market.

Economic theory suggests that there are several potential links between taxation and employment decisions.

First, fiscal policies can influence people’s choices about whether to enter the workforce, work additional hours or seek higher-paying jobs. For example, high tax burdens on labour can reduce the incentives to find work, particularly for lower-income earners.

Second, income taxes and social security contributions (such as national insurance payments) can affect employers’ hiring decisions and wage offers. For example, higher employer taxes, like the forthcoming increase in NICs, can discourage job creation and/or lead to a preference for part-time rather than full-time employees.

Third, taxes on labour can also interact with other institutional features of the labour market, such as unionised bargaining and minimum wage laws, pushing pay packets above market-clearing levels (the point where demand equals supply). This, in turn, can increase what economists call the equilibrium long-run rate of unemployment (OECD, 2011).

The latest UK labour market data indicate some signs of this relationship. The slowdown in new hires and the increase in redundancies suggest that the private sector is adapting to the increased costs of employment by reducing staff numbers – either by letting more people go or recruiting fewer people (or both).

With the April policy changes looming, further shifts in the labour market are expected as both employers and employees adjust to the new economic conditions. These changes may also extend to other areas, such as reduced worker benefits (like overtime pay and bonuses) or cuts to training budgets.

The full impact of these fiscal measures on hiring trends and unemployment remains to be seen. But for now, the data suggest that while those in work have experienced promising wage growth, it is an increasingly difficult time to find a new job or bring on an additional staff member.

To learn more about the dynamics of the labour market, explore other recent articles from the Economics Observatory: