May 2025 UK Jobs Report: Further Slack Develops

Unemployment, in the three months to May, rose to 4.7%, above consensus estimates, and the highest such level since mid-2021.

Meanwhile, earnings growth continued to cool. Regular pay rose 5.0% YoY, the slowest pace since the middle of 2022, while overall earnings rose 5.0% YoY, the slowest such pace since last September, with both moderating from the pace seen in April.

The more timely HMRC PAYE payrolls indicator, for June, pointed to further 41,000 jobs having been lost last month, meaning that payrolled employment has now declined for 8 months in a row. In other words, the UK economy has lost jobs every month since last October’s tax hiking Budget.

All in all, this morning’s figures pointed to a greater margin of slack continuing to develop in the labour market, where risks remain clearly tilted to the downside, amid not only the continued effects of April’s National Insurance hike, but also the impact of a higher minimum wage, and the significant degree of uncertainty which clouds the outlook.

Despite this, today’s data is unlikely to see the BoE pursue a faster pace of easing, with a dovish turn still prohibited by stubborn price pressures, particularly after the hotter than expected June CPI released yesterday. Consequently, the Bank’s ‘gradual and careful’ guidance looks set to stay in place for now, likely leading to just two 25bp cuts being delivered over the remainder of the year.

This continued tight monetary policy stance, combined with the prospect of further fiscal tightening in the autumn, means headwinds facing the labour market are set to persist. The employment backdrop looks set to sour much further in the months ahead.