The UK job market is showing signs of strain as hiring activity continues to slow and pay growth begins to level off, according to new figures released this week. The data reflects increasing employer caution as economic uncertainties persist and cost pressures continue to mount.
In February 2025, permanent job placements dropped for the 29th month in a row, although the decline was slightly less sharp than in January. Simultaneously, starting salaries for new hires grew at their slowest pace in four years, indicating a shift in how employers are managing rising wage expectations amid economic pressure.
While vacancies remain higher than pre-pandemic levels, the overall pace of recruitment is slowing. Recruitment consultancies say that companies are becoming more risk-averse, delaying hiring decisions and focusing more on fixed-term contracts and temporary roles. This shift reflects both ongoing uncertainty around inflation and broader economic policy. Many employers are also waiting for the next fiscal announcements and general election outcomes before committing to long-term staffing plans.
“Employers are under increasing pressure as pay expectations remain high while economic confidence is subdued,” said Jon Boys, Senior Labour Market Economist at the CIPD. “We’re seeing signs of caution in recruitment intentions, with organisations hesitant to make long-term hiring commitments.”
Labour market analysts have noted that although inflation-adjusted pay has improved slightly over the past year, real-terms wage growth remains weak for many sectors. According to the Office for National Statistics (ONS), average earnings excluding bonuses rose by 5.9% in the year to January 2025. However, adjusted for inflation, real pay increased by just 2.2%.
The trend is particularly visible in sectors such as retail, hospitality, and social care—industries that employ large segments of the population and rely heavily on entry-level and part-time roles. In these sectors, modest pay rises are doing little to offset the cost of living crisis, leaving many workers struggling to make ends meet.
The ONS also reported that the UK employment rate stood at 75.0% between November 2024 and January 2025, while unemployment edged up to 4.4%. Economic inactivity fell slightly to 21.5%, suggesting that more people are returning to the labour market.
Candidate availability has improved marginally, with more people actively seeking work. However, the quality of available candidates remains a concern for many recruiters, particularly for roles requiring specialist technical skills. Upskilling and training remain pressing challenges across many industries.
Some experts have suggested that automation and digital transformation may offer solutions to skills shortages, but warn that these changes must be accompanied by appropriate investment in people. Employers are being urged to think strategically, investing in workforce development and internal mobility to build resilience over time.
The slowdown in pay growth also has potential implications for equality and inclusion. With pay gaps still persistent across gender, ethnicity, and disability, any stagnation in wage progression risks further entrenching disparities. Equality campaigners are calling for pay audits and targeted efforts to ensure underrepresented groups are not left behind in a tougher economic climate.
The government is also under pressure to clarify its approach to employment support, training and regional job creation. While national figures provide an overview, local economies often experience different trends, with some areas facing acute skills shortages and others seeing high unemployment.
For jobseekers, the current climate means managing expectations and preparing for more competitive hiring processes. Recruitment experts suggest that flexibility, digital literacy, and the ability to upskill quickly will be key traits for success in this evolving market.
As businesses continue to navigate uncertainty, the balance between cautious hiring and long-term workforce planning will be crucial. The coming months will reveal whether the slowdown in hiring is a temporary adjustment or the beginning of a longer-term shift in the UK’s labour market.