The slowdown in the UK jobs market became more evident in the run-up to November’s budget, as new figures revealed a sharp drop in payroll employment and weaker wage growth.
Official data released on Tuesday highlighted the largest monthly fall in payrolled jobs since late 2020, signalling a tougher environment for workers and employers alike.
The changes coincided with a period of increased economic uncertainty before Finance Minister Rachel Reeves delivered the budget.
Despite some improvements in GDP for November, the labour market continued to lose momentum, raising fresh concerns over hiring and wage conditions across key sectors.
Employment data shows decline
According to payroll figures from the tax office, December recorded a drop of 43,000 payrolled employees compared to the previous month.
This marks the most significant fall since November 2020.
Although previous months have seen similar preliminary estimates, many of those were later revised upwards. November’s fall, initially reported at 38,000, was updated to show a decline of 33,000.
The latest figures reflect a broader slowdown in hiring activity that has developed throughout the year. Despite a steady unemployment rate of 5.1%, hiring across multiple sectors remains subdued.
Private sector pay sees smaller rise
Wage growth also continued to ease. In the three months to November, private sector pay excluding bonuses rose by 3.6% annually, its slowest pace in three years.
That figure is down from 3.9% in the previous three-month period ending in October.
Overall pay growth, which includes all sectors, slowed to 4.5%—slightly lower than the 4.6% figure recorded in the previous quarter.
These figures reflect a consistent downward trend in pay increases. Slower wage growth is being watched closely by the Bank of England, which sees it as a key factor in assessing the future path of inflation.
ONS highlights retail and hospitality cuts
The Office for National Statistics pointed out that job losses over the past year have been concentrated in retail and hospitality.
Both sectors have experienced weaker demand and reduced hiring, contributing to the decline in overall payroll numbers.
These sectors are typically more sensitive to economic uncertainty and changes in consumer spending, and their contraction signals challenges for lower-income and part-time workers.
The ongoing drop in hiring activity shows no clear signs of recovery, as businesses continue to exercise caution.
The effects of inflation and interest rates have added pressure, limiting expansion plans across many industries.
Interest rate expectations shift
With wage growth slowing and hiring subdued, financial markets are adjusting their expectations for interest rates.
By Monday, markets had fully priced in at least one 0.25 percentage point rate cut for 2026.
There is also a two-thirds chance of a second cut within the same year, according to market indicators.
The Bank of England has been using wage data as a key input in its interest rate decisions.
Slower growth in earnings suggests reduced pressure from inflation, which may lead to a more accommodative stance over time.
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