UK Labour Market Shows Signs of Cooling as Unemployment Holds at 4.7%

The UK labour market is exhibiting signs of cooling, with the unemployment rate holding steady at 4.7% in the three months to July 2025, according to the latest data from the Office for National Statistics (ONS). This marks the highest unemployment rate since mid-2021 and suggests a gradual slowdown in the job market.

While the unemployment rate remained unchanged, the number of people in employment declined by 8,000 to 30.3 million in August, following a revised fall of 6,000 in July. Over the past 12 months, payrolls have contracted by 127,000, indicating a sustained weakening in hiring momentum.

Job vacancies also continued their downward trend, falling by 10,000 to 728,000 in the three months to August. This marks the 38th consecutive period of declining job openings, reflecting reduced demand for workers across various sectors.

Wage growth has also shown signs of slowing. Average weekly earnings excluding bonuses increased by 4.8% in the three months to July, down from 5% in June. Including bonuses, wages rose by 4.7%, the lowest since May 2022. Despite this slowdown, wage growth remains above the Bank of England's 2% inflation target, which could influence future monetary policy decisions.

Economists attribute the cooling labour market to several factors, including recent tax increases introduced by Chancellor Rachel Reeves and broader economic uncertainties. The slowdown in hiring and wage growth may ease inflationary pressures, potentially influencing the Bank of England's decision to maintain interest rates at 4% amid broader economic concerns.

Despite the weakening labour market, inflation remains a central concern for policymakers. The latest data indicates that inflation is projected to remain near 3.8–3.9%, above the Bank of England's target. This persistent inflation could complicate efforts to stimulate economic growth through monetary policy adjustments.

In summary, while the UK's unemployment rate remains steady at 4.7%, the labour market is showing signs of cooling, with declines in employment, job vacancies, and wage growth. These developments may have significant implications for economic policy and household finances in the coming months.