UK pay growth slows as hiring weakens

What it means for your business and your finances

The UK labour market is showing clear signs of cooling. According to the latest Office for National Statistics (ONS) figures, unemployment stayed at 4.7% in the three months to June – its highest level in four years – while annual pay growth slipped from 5% to 4.6%.

Pay growth excluding one-off awards stayed at 5%, suggesting employers are scaling back bonuses and other incentives. At the same time, vacancies dropped by 44,000, a fall of more than 5% from the previous quarter and the 37th consecutive quarterly decline, bringing total vacancies down to 718,000 – well below pre-pandemic levels.

Sector pressures and hiring slowdown

The finance and business services sector, where bonuses often make up a significant part of pay, saw the weakest annual regular pay growth at just 3.1%. Surveys by the Chartered Institute of Personnel and Development show only 57% of private sector employers plan to recruit in the next three months, compared with 65% last autumn. Young jobseekers are feeling this drop in hiring intentions most sharply.

Wider economic signals

The Bank of England has flagged signs of easing pay pressures and a softer labour market. It recently cut interest rates by a quarter point to 4%, but further cuts aren’t expected immediately. Markets had already anticipated a slowdown in both pay growth and recruitment.

What this means for small businesses

For business owners, these figures carry a few important implications:

• Recruitment and retention: A cooler labour market may make it easier to hire, but competition for skilled staff in key roles remains.
• Wage budgeting: Slower pay growth provides an opportunity to revisit salary forecasts and cashflow plans.
• Cost management: Even with easing wage pressure, employment costs (including National Insurance and pensions) remain significant.



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