Decline in Hiring Remains Steep

The UK economy is currently experiencing a decline in business hiring, a trend that has persisted for the past three years, according to Monica George Michail, an Associate Economist at NIESR. This downturn in employment can be attributed to several factors, including higher labour costs due to tax rises and minimum wage hikes, overall economic uncertainty, and a gradual slowdown in wage growth, particularly in the services sector where regular wage growth remains elevated at 5%.

The latest unemployment rate in the UK has risen to 4.7%, marking a four-year high, as reported by the Office for National Statistics (ONS). This increase in unemployment is partly due to a rise in labour supply, as inactivity has decreased.

Monica George Michail's analysis also suggests that the Bank of England is facing uncertainty regarding strong pay growth. This uncertainty is rooted in the services sector, where regular wage growth remains high. Wage growth for regular earnings has slowed to 4.6%, while total earnings (including bonuses) have recorded a 5% annual growth rate in the three months to June 2025, according to ONS figures.

The economic landscape is not entirely bleak, as there are signs of gradual easing, with one further interest rate cut expected by the end of the year.

Elsewhere, the metal and electrical industry in Bavaria has been hit hard by an ongoing economic crisis, reduced production, and underutilized factory capacity. As a result, companies in this sector have continuously reduced employment, cutting 18,000 jobs in the first half of 2025. Factors such as skilled labor shortages, supply chain issues, and digitalization challenges have contributed to this employment decline.

Furthermore, recent visa restrictions have made it more expensive to hire overseas candidates, potentially slowing recruitment in some industries.

This comprehensive analysis falls under the categories of Labour Markets, Macroeconomics, UK Economy, and Unemployment, and is related to Macro-Economic Modelling and Forecasting. Access to this content is restricted to corporate members, NiGEM subscribers, and NIESR partners.