Labour market blows hot and cold as real wages rise but employment falls 18 February 2025 The UK labour market is blowing hot and cold, with the strongest year for pay packets in two decades contrasting with an 18-month fall in the employment rate. But of these two trends, the latter is more likely to persist into 2025, the Foundation said in response to the latest ONS labour market statistics. Payrolled employment levels fell slightly in December, by 14,000, but have been broadly flat since May 2024 (down 36,000 or 0.1 per cent). The Foundation’s projected employment rate, which combines HMRC payroll data with the latest ONS population estimates, suggests that the UK’s 16+ employment rate fell to 61.0 per cent in December, down from a recent peak of 61.8 per cent in March 2023 (and a pre-pandemic rate of 61.9 per cent). One crumb of comfort, says the Foundation, is that the even bleaker employment outlook in recent business surveys has yet to materialise in the data. Ongoing problems with the ONS labour force survey mean that official estimates of employment, unemployment and economic inactivity are no longer reliable. Earnings have been defying the UK’s worrying picture on work and wider economic growth, and continue to grow at a healthy rate. Real wages growing by 2.5 per cent in the three months to December, making 2024 the strongest year for pay packets (outside of the pandemic) since 2004. Real wages grew by 2.2 per cent between the 2023 and 2024 calendar years. The Foundation notes however that despite this welcome recovery, real average weekly earnings today remain just £12 higher than pre-financial crisis (Aug 2007) levels – and £278 below where they would be if they had followed their pre-financial crisis trend. Looking ahead, the Foundation says that that absence of productivity growth and a weaker jobs market mean that wage growth is likely to tail off considerably this year. Hannah Slaughter, Senior Economist at the Resolution Foundation, said: “The UK labour market continues to blow hot and cold. Having staged a welcome post-pandemic recovery, our analysis suggests that the employment rate has been falling for the past 18 months, with the small rise in the number of employees outweighed by growth in the adult population. “While employment has been falling, real wages continue to rise. Last year was the best year for pay packets in two decades, helping to recovery some of the ground lost since the financial crisis. “But with productivity failing to turn a corner and the wider economy struggling to grow, the UK’s pay recovery is likely to run out of steam soon.”
