The UK labour market is showing clear signs of cooling in 2025 as firms hold back on hiring, with job vacancies falling sharply to 736,000 between March and May—the lowest since April 2021. This marks the 35th consecutive quarterly decline in vacancies, reflecting growing economic uncertainty, rising employment costs, and shifting employer confidence. The unemployment rate has edged up to 4.6%, and many sectors, especially hospitality and retail, are seeing a notable slowdown in recruitment activity.
Steep Decline in UK Job Vacancies
According to the latest data from the Office for National Statistics (ONS), the estimated number of job vacancies in the UK fell by 63,000 (7.9%) in the three months to May 2025, down to 736,000. This decline continues a prolonged downward trend, with total vacancies now 150,000 (16.9%) fewer than a year ago and 59,000 (7.4%) below pre-pandemic levels from early 20201. The labour market’s tightness is loosening, with the ratio of unemployed people per vacancy rising to 2.2 from 1.9 in the previous quarter, indicating more competition for fewer jobs.
The drop in vacancies spans 14 of 18 industry sectors, with the largest percentage falls in “other service activities” (down 36.9%) and significant volume decreases in professional, scientific, and technical services, as well as construction. Hospitality, retail, and administrative sectors are particularly affected, with firms often choosing not to replace staff who leave.
Rising Unemployment and Employment Trends
The UK unemployment rate increased slightly to 4.6% in early 2025, the highest since July 2021, reflecting the slowdown in hiring and a softening labour market. Payroll data shows a decrease of 47,000 payrolled employees between February and March 2025, with a year-on-year drop of 63,000. Despite this, the overall employment rate remains relatively stable at around 74.8%, with workforce jobs estimated at 37.1 million in March 2025—up 0.5% from December 2024.
Employer Caution Driven by Cost Pressures and Economic Uncertainty
Several factors contribute to the hiring freeze. Liz McKeown, Director of Economic Statistics at the ONS, noted that increased National Insurance Contributions and a higher minimum wage implemented in April 2025 have added financial strain on employers, leading many to hold off on recruiting new workers or replacing those who leave. This sentiment is echoed by recruitment experts and economists who highlight the impact of rising employment costs and global economic uncertainties.
Jim Moore, employment relations expert at Hamilton Nash, described the labour market as “quickly going from cool to cold,” with rising unemployment and falling vacancies signaling dark clouds for workers and employers alike. Jack Kennedy, senior economist at Indeed, pointed to uncertainty from tariffs and employment cost hikes as key headwinds dampening hiring enthusiasm.
Sector-Specific Impacts and Skills Shortages
While most sectors are experiencing a decline in vacancies, some specialist areas such as technology, logistics, and healthcare continue to report skill shortages4. However, even these sectors face challenges as employers become more cautious. Nursing, medical care, hotel and catering, and retail sectors saw the steepest reductions in permanent vacancies in April 20254. Engineering was the only sector to report a slight increase in demand for permanent staff during this period4.
Chris Daly, CEO of the Chartered Institute of Marketing, highlighted ongoing recruitment challenges in marketing and professional services, with many professionals dissatisfied with pay and seeking upskilling opportunities, especially in artificial intelligence4.
Worker Perspectives and Labour Market Dynamics
Despite the slowdown in hiring, real pay growth remains positive at 5.6% year-on-year, largely driven by private sector wage increases catching up with inflation. However, this wage growth may not fully offset the challenges posed by fewer job openings and increased competition.
Workers are increasingly prioritizing flexibility and work-life balance, with many willing to accept lower pay for remote work options. This shift in worker preferences adds another layer of complexity for employers navigating recruitment amid economic uncertainty.
Outlook for the UK Labour Market
The UK labour market is at a crossroads in 2025. While some analysts express cautious optimism for the second half of the year, ongoing cost pressures, rising unemployment, and falling vacancies suggest a challenging environment ahead4. Rebecca Florisson of the Work Foundation warned that employment numbers might continue to shrink, particularly in low-paid sectors affected by National Insurance hikes and minimum wage increases.
Recruitment firms report a 31-month consecutive downturn in permanent placements, with temporary job openings shrinking at the fastest pace since mid-2020. Regional differences also persist, with the South of England experiencing the strongest downturn in permanent appointments, while London sees a gentler decline.
The sustained fall in UK job vacancies and the rise in unemployment underscore a clear cooling of the labour market in 2025. Economic headwinds, rising employment costs, and shifting worker expectations are prompting firms to hold off on hiring, especially in traditionally labour-intensive sectors like hospitality and retail. While some specialist areas still face skill shortages, the overall trend points to a more cautious recruitment landscape. Employers and workers alike must navigate this evolving market carefully as the UK economy adjusts to post-pandemic realities and global uncertainties.
