UK Labour Market At A Critical Juncture Ahead Of Budget

The UK employment landscape is on a slow road to recovery. Following a sharp decline in the UK employment rate in the immediate aftermath of last year’s Autumn Budget, steady gains saw the market move from -0.9 % month-on-month in December to 1.7% in July. 

A Year Of Ups And Downs 

Employment Hero’s inaugural Annual Jobs Report signals this U-shaped curve in employment rates with a 3.1% year-on-year increase as of July 2025, but there’s still a long way to go. Last year’s employment rate stood at 8% before a rapid decline following the introduction of National Insurance Contribution (NIC) hikes and rising inflation in April.  

Median wages took a hit too. Between seasonal trends and the wake of the Budget, earnings suffered a dip from January to March 2025 before steadily climbing to 2.6% YoY. 

While raw wages are trending upward, the gains are being consumed by inflation, cutting into real wages and leaving large swathes of workers in precarious positions and little improvement in their purchasing power.

Generational And Gender Outcomes 

This trend has not impacted all demographics equally. While raw earning power remains highest among Millennials (Gen Y), they have seen the slowest YoY wage growth at just 1.8%. In contrast, Gen Z workers and Boomers have experienced the steepest increases (5.0% and 4.9% respectively), likely due to a combination of entry-level salary boosts and targeted pay adjustments. The data also reveal a notable difference in gender wage growth, with women seeing a much stronger YoY increase (4.7%) compared to men (2.2%), though a significant raw wage gap still persists.

Speed Bumps On The Road To Recovery

While these short-term gains show some signs of recovery, they don’t quite go far enough to sustain the rate of growth we’ve seen prior to the January-July period this year. The slowdown points to signs of an ailing job market with plenty of challenges ahead as this year’s Budget looms. There are also further structural challenges to contend with, including inflationary pressures, labour market imbalances, and sector-specific slowdowns that, without the right support, could lead to more uncertainty. 

Confidence plummets while competition surges 

In the face of this volatility and rising competition in the job market, anxieties about employment prospects are widespread.

“Workers are facing a difficult balancing act – while pay growth remains strong, inflation continues to eat into real wages, and job opportunities are thinning out”, Nina Skero, Chief Executive of CEBR, observes.

“With fewer roles to go around and growing competition for vacancies, Employment Hero’s data reveal that many workers are prioritising job security over ambition in an increasingly uncertain market.”

Full time work takes the lead

The types of jobs being created vary significantly too. When we dig into the details, full-time employment has been resilient, with growth up 5.4% YoY as of July 2025. By contrast, part-time and casual roles have faced a sharp decline since January, with YoY growth falling to 1.4%. It suggests that while businesses are beginning to resume hiring for long-term positions, and part-time and casual work has seen a sharper downward trend since January, the NIC hike didn’t hit full-time employment nearly as hard as part-time roles. 

An uphill battle

Kevin Fitzgerald, UK Managing Director at Employment Hero, stresses that “we’re at a critical juncture” in the UK employment landscape. 

“As we head towards the Autumn Budget, avoiding more tax changes that trigger knee-jerk reactions from businesses will be vital if we want to build on the early signs of recovery,” he adds. 

To avoid that, the Government faces a great deal of pressure to introduce policies that inspire confidence and encourage enduring growth. Without those assurances, the employment landscape could soon become yet more precarious.