UK economy shed jobs for fifth consecutive month in June

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UK payroll employment fell for the fifth consecutive month in June and wage growth slowed, in the latest sign that the government’s tax rises, a higher minimum wage and the US trade war are hitting the jobs market.

Employers cut the number of payrolled staff by 25,000 between April and May, the Office for National Statistics said on Thursday, revising its previous estimate of a 109,000 drop. 

Early estimates for June showed a further 41,000 decline, leaving payrolled employment down by 178,000 or 0.6 per cent from June 2024, although these figures for the latest month are likely to be revised. 

Wages growth eased, with average earnings excluding bonuses 5 per cent higher in the three months to May than a year earlier — down from annual growth of 5.3 per cent in the three months to April. 

Businesses are contending with the increase in national insurance contributions announced in Rachel Reeves’ October Budget and a rise in the minimum wage. The measures took effect in April, when US President Donald Trump kicked off his trade war.

The Bank of England’s Monetary Policy Committee has highlighted its increasing concern at the weakening jobs market, but officials also face an uptick in inflation as they consider when next to cut interest rates.

Data earlier this week showed inflation rose to 3.6 per cent in June, making the UK an international outlier for the persistence of price pressures. The MPC, which has an inflation target of 2 per cent, has reduced interest rates four times since last summer.

“The latest jobs data presents a clear case for lowering interest rates,” said Charlie McCurdy, economist at the Resolution Foundation think-tank. “But higher than expected inflation muddies the picture.”

Following the jobs figures, traders continued to bet the BoE would deliver two quarter-point interest rate cuts this year, with the next move coming in August, according to levels implied in the swaps market.

ONS revisions to payroll figures since the start of the year show that while employers are retrenching, the job cuts have been less severe than previously estimated.

“Employment is falling far less quickly than the MPC feared before today’s data,” said Rob Wood, at the consultancy Pantheon Macroeconomics, pointing to the revisions.

The deteriorating jobs market increases the pressure on Reeves, who had faced a backlash from businesses over the increase in NICs, which accounted for the lion’s share of the £40bn of tax rises announced in the Budget.

Paul Dales, at the consultancy Capital Economics, said that although there was evidence businesses were responding to the tax and minimum wage increases by raising prices, Thursday’s figures suggested that “the bigger response appears to be the reduction in headcounts”.

Employers had now cut headcount in seven out of the eight months since the chancellor announced the policy changes, he noted, and this would eventually weigh on wage growth, paving the way for further rate reductions.

Unemployment rose to 4.7 per cent in the three months to May, up from 4.6 per cent a month earlier, according to the ONS headline measure based on its labour force survey. Vacancies also fell, meaning there were 2.3 people seeking work for each post available.