Number of Employed People in UK Falls Again as Wage Growth Slows

The UK labour market is sending out fresh warning signals. According to the latest official data, the number of employed people in the UK has fallen again, while wage growth has slowed to its weakest pace in years. For workers, employers, and policymakers, these developments raise serious questions about where the economy is heading in 2026.

At a time when households are still grappling with high living costs and businesses face rising pressures, the cooling jobs market is becoming increasingly difficult to ignore.

UK Employment Numbers Continue to Slide

Recent figures released by the Office for National Statistics (ONS) reveal that payroll employment has declined once more, marking a continuation of a troubling trend. Over the past year, tens of thousands of jobs have been lost, with total payrolled employment falling to just over 30 million people.

This is not a one-off dip. Employment has now fallen for several consecutive periods, signalling a broader slowdown rather than a temporary fluctuation. Sectors such as retail, hospitality, and accommodation have been hit particularly hard, reflecting weaker consumer demand and higher operating costs.

For an economy that relies heavily on services, these losses are a clear sign that businesses are tightening their belts.

Wage Growth Slows to Multi-Year Lows

At the same time as employment numbers fall, wage growth is losing momentum. Average earnings excluding bonuses are now growing at around 4.5%, down from previous quarters and the slowest pace in roughly five years.

While wages are still technically rising, the slowdown matters. Slower pay growth often signals that employers are becoming cautious. Instead of competing aggressively for workers, companies are holding back on salary increases as they assess economic risks.

When inflation is factored in, real wage gains look even less impressive. Many workers feel that their pay packets simply aren’t stretching as far as they once did, keeping pressure on household budgets.

Unemployment Holds Steady — But That’s Not the Full Story

Interestingly, the unemployment rate has remained relatively stable at just over 5%. At first glance, this might suggest that the labour market is holding up better than employment figures imply.

However, a stable unemployment rate doesn’t always mean good news. Some people leaving payroll jobs may not be counted as unemployed because they have moved into self-employment, part-time work, gig economy roles, or left the workforce altogether.

This hidden softness in the labour market often becomes visible only over time — especially if hiring remains weak.

Why Are Jobs Disappearing?

Several factors are contributing to the decline in employment and slowing wage growth.

1. Business Uncertainty

Many employers are cautious due to uncertainty around economic growth, consumer spending, and global conditions. When the future looks unclear, companies often delay hiring decisions.

2. Rising Costs for Employers

Higher taxes, increased national insurance contributions, and energy costs have made it more expensive to employ staff. For some businesses, cutting jobs becomes a way to protect margins.

3. Weaker Consumer Demand

Households facing higher bills and slower wage growth are spending less. This directly affects sectors like retail and hospitality, where staffing levels depend heavily on consumer activity.

4. Structural Changes in the Labour Market

Automation, remote work, and a shift toward flexible contracts continue to reshape how businesses hire. While some sectors are growing, others are shrinking faster than workers can transition.

Is the UK Heading Toward a Recession?

Falling employment and slower wage growth often spark fears of a recession. While the UK economy is not officially in recession, these labour market signals suggest growth is fragile.

Economists argue that the situation represents a cooling phase rather than a collapse. GDP growth is expected to continue, but at a modest pace. Still, if employment continues to fall, it could eventually weigh more heavily on consumer confidence and spending.

Much now depends on how policymakers respond.

What This Means for Workers

For workers across the UK, the changing labour market brings mixed realities:

Job security feels weaker, especially in lower-paid sectors

Pay rises are becoming smaller, making it harder to keep up with living costs

Job hunting may take longer, particularly for younger workers and career changers

On the positive side, sectors like technology, healthcare, and specialised services still show resilience. Upskilling and flexibility are becoming more important than ever.

The Role of the Bank of England and Government

The labour market slowdown is likely to influence future decisions by the Bank of England. With wage growth easing and employment falling, the pressure to cut interest rates may increase in the months ahead.

Lower interest rates could support borrowing and investment, but policymakers must balance this against inflation risks. Meanwhile, the government faces calls to support businesses and workers through targeted measures such as training programs and investment incentives.

Looking Ahead: A Labour Market at a Crossroads

The UK jobs market is clearly at a turning point. The combination of falling employment and slowing wage growth suggests an economy adjusting to new realities rather than powering ahead.

Whether this adjustment leads to renewed growth or deeper challenges will depend on:

Policy decisions in 2026

Global economic stability

Business confidence and investment

For now, the message from the data is clear: the labour market is cooling, and both workers and employers will need to adapt.

Final Thoughts

The fall in the number of employed people in the UK, coupled with slowing wage growth, highlights a period of economic uncertainty. While the situation is not yet alarming, it is a clear signal that the post-pandemic recovery has lost momentum.

As the year unfolds, the focus will be on whether targeted policies and improving conditions can stabilise employment — or whether further cracks will emerge in the UK’s labour market.