Published: 2025-11-11T08:01:57.000Z

UK Labor Market: Continued Private Sector Job Losses Weighing Even More Clearly on Wages

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Previous signs that the labor market is haemorrhaging jobs less clearly have evaporated, with fresh and deeper falls in the more authoritative payrolls.  Indeed, private sector payrolls are still falling, down almost a full ppt in y/y terms and more steeply so (Figure 1).  Regardless, the latest labor market data (still bereft with reliability questions) are showing more comprehensive signs that the labor market is loosening with activity rates back to almost pre-pandemic levels.  Partly as a result, the jobless rate has risen to 5.0% and, in tandem with the 40th consecutive month of falling vacancies, is very much showing that the ratio of the two has hit new highs, also consistent with a looser labor market.  This helps explain the clear(er) signs of softer wage pressures (Figure 2) with the growth rate of private sector regular pay down to the lowest since end-2021, also now undershooting BoE projections and where more short-term measures suggesting even weaker growth (Figure 3).  Discussion/speculation of a 50 bp BoE cut next month may intensify!

Figure 1: Private Sector Payrolls Still Falling More Clearly

Source: ONS, CE, % chg y/y

There are still questions about the reliability of official jobs data, making a focus on the now full accredited HMRC payroll data all the more important.  This gauge of employment excludes self-employment) and has been showing clear declines of late, albeit some revised away.   However, while have been signs that payroll weakness has ebbed this was almost solely a result of a further jump in public sector jobs, mainly in health.  Indeed, public sector payrolls have risen almost full ppt in the last year, but now seem to be reversing.  Regardless, private sector payroll are falling more steeply (Figure 1).  To what extent this reflects the on-going impact of recent tax changes (although the jobs declines are not concentrated in the more wage sensitive service sector) is unclear.  But surveys very much suggest companies are at best freezing hiring and at worse laying staff off or not replacing, this latter development helping explain the fact that vacancies have fall in every month for over three years. 

Figure 2: A Looser Labor Market Undermining Wage Pressures

Source: ONS, CE

This, alongside a further rise in activity (or participation) rates (back almost to pre-pandemic levels), has contributed to a rise in unemployment and a rise in the jobless to vacancies ratio – often seen as a better gauge for the labor market tightness.  Indeed, this ratio has risen to there now being 2.4 unemployed for every vacancy – up by a third in the last year.  But this data is probably understating labor market looseness as it is still reliant on official ONS data where survey response question reliability.  Indeed, (Agents) survey data produced by the BoE very much suggest that labor looseness is more marked than the official data (Figure 2), actually back to levels below pre-pandemic averages (Figure 2).  And it is this labor market loosening that probably explains the fall in wage pressures – at least in the private sector (base effects have pushed up in public sector wage earnings data – temporarily!

Figure 3: Private Sector Pay Growth - Falling Fast

Source: ONS, CE

 The slowing in pay that the BoE hawks have almost dismissed may not be so elusive after all!

 

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