A flexible, high skill and plentiful UK labour market is central to the government’s ambitions to grow the economy through investment and increased productivity.

Unfortunately, any discussion of the current state of the UK labour market is almost entirely anecdotal, a regrettable situation at such a crucial time but one made inevitable by the shortcomings of the only comprehensive set of statistics, those gathered by the Office for National Statistics (ONS).

To quote the House of Commons Library’s latest Statement on UK Labour Market Statistics: “Labour Force Survey (LFS) data is less reliable than usual at the moment, and the ONS have said that the estimates from this survey should be considered alongside other labour market sources.”  The issues with this key data stem from poor recent response rates to the long-running LFS since the pandemic and have been recognised now for many months.

ONS labour market data

For what the information may be worth, the current Labour Market Overview for June 2025 published by the ONS and covering the quarter to April 2025 can be summarised as follows:

• Employment rate (aged 16-64): 75.1%
• Unemployment rate (aged 16+): 4.6% – up from 4.5% in previous quarter
• Number of unemployed (aged 16+): 1.64 million
• Economically inactive (aged 16-64): 9.19 million (21.3%)
• Real wage growth: 2.3% (regular pay) and 2.1% (total pay) (adjusted for inflation)
• Vacancies: 736,000 (March to May 2025), a decrease of 7.9% on previous quarter

In broad terms, this suggests that unemployment is rising, wage growth is inflationary (especially in the labour-intensive service sector) and vacancies are likely to be falling not because posts are being filled but instead as a result of jobs being withdrawn.

ManpowerGroup data

A more meaningful picture of realities of the labour market comes from asking employers about their hiring intentions and the barriers they experience in recruiting and retaining staff. This information is available from ManpowerGroup, a leading global workforce solutions Company, which publishes a quarterly Employment Outlook Survey, which has been running since 1962.

The latest Employment Outlook Survey for Q2 2025 has headline findings that:

• UK employers are continuing to kick major hiring decisions into the long grass, with 42% of organisations planning no changes to their headcount for Q2 (April – June) 2025.
• Among those who are planning to change staffing levels, the data reveals an average 27% decrease in hiring volumes versus Q1 2025.

Dig down a little further and a split emerges between the hiring intentions of different sized businesses in Q2 25. Micro entities are actually looking to increase new hires, while medium sized businesses only expect to cut hiring by 5%. By contrast, large (-26%), very large (-38%) and major corporates (-24%) are planning significant recruitment reductions.

Apart from those businesses where current staffing levels are sufficient to meet strategic goals, the main reasons for leaving headcount unchanged or reducing it are:

• Financial restrictions
• Waiting for economic change
• No major projects or expansion planned

The availability of appropriate skills is clearly an issue too. The research identifies the leading skill shortages as being for roles in:

• IT & data
• Operations and logistics
• Engineering
• Sales & marketing
• Front office, customer facing

ManpowerGroup’s thoughts from the recruitment and HR coal face are that the Autumn Budget tax and other increases which came into effect in April mean that the hiring recession looks set to continue until the impact has been fully analysed by cautious business leaders.

It predicts that widespread caution will continue to stifle decision-making, so that employers will need to treat their workforce as they would in an economic recession; they must look at driving productivity within their workforce for the rest of the year. They believe that those businesses, which are able to work smarter over the foreseeable future will be in a better position for when the wider economy does turn around.

The effect of AI and automation on jobs

As AI and other tech seeps into every nook and cranny of businesses and their processes, the debate rages on about the effect on jobs, both in the short and longer term. This is the elephant in the labour market room. There are wildly differing predictions about the impact of AI on the UK labour market.

A report by the Tony Blair Institute for Global Change in November 2024 estimates between 1 to 3 million jobs could ultimately be displaced by AI. These job displacements will not occur all at once, but will rise gradually with the pace of AI adoption across the wider economy. On an annual basis, this means job displacements may peak at between 60,000 and 275,000 jobs a year, which are relatively modest figures compared with the average number of job losses seen over the past decade in the UK (450,000 per year).

Other more florid forecasts have suggested that up to 8 million UK jobs could eventually be disrupted though not necessarily displaced, but the reality is that there can be no certainty on the impact on job numbers at this relatively early stage in the adoption of AI. What is more important are the training challenges this phenomenon is creating.

The government’s AI Opportunities Action Plan published in January 2025 outlines the sheer scale of the task of enabling the UK workforce to interact effectively with AI. It reports that:

• Just 27% of UK business leaders believe their non-technical workforce is prepared to adopt AI into their roles.
• Only 33% of them feel confident in their organisation’s level of AI proficiency, which compares unfavourably with countries such as India (49%) and France (55%).

Conclusions

Economic uncertainty, mainly attributable to the fluctuations in US trade policy but also exacerbated by Middle East tensions has largely brought the UK labour market to a halt. The situation has not been helped by sharp cost increases triggered by the Autumn Budget.

Additionally, the UK faces some very serious issues with the scale of economic inactivity in the labour force and with skill shortages, which are being intensified by the headlong progress of AI adoption.  All is very challenging in the UK labour market.

If you are seeking professional advice for your business, Opus is here to help. You can speak to one of the members from Opus, who can discuss options with you. We have offices nationwide and by contacting us on 0203 995 6380, you will be able to get immediate assistance from our Partner-led team.