Private Sector Jobs Continue to Fall as Wages Lag Behind Inflation

Britain’s jobs market is showing further signs of strain, adding to concerns over a potential winter of discontent as Andy Burnham prepares for mounting economic pressure.

Official data showed the number of people on company payrolls fell by 26,000 last month, leaving the total 145,000 lower than it was a year ago.

Vacancies also dropped to a new five-year low in the three months to August, with roughly 8,000 fewer jobs being advertised than during the same period in 2025.

Regular pay growth in the private sector stood at 2.9 per cent, only marginally outpacing inflation.

The public sector told a different story, with annual wage growth accelerating to 6.6 per cent. Public-sector employment rose by another 11,000 in the three months to June, taking the state payroll to 6.21million people.

Liz McKeown, the ONS director of economic statistics, highlighted the impact of Labour’s increases to employer national insurance contributions and the minimum wage.

She said: ‘Smaller businesses are continuing to report that increased labour costs are affecting hiring decisions.’

The downbeat figures come as the Middle East crisis appears to be worsening, raising fears that surging energy costs could trigger another inflationary wave. Markets are now pricing in as many as five Bank of England interest-rate rises before the end of the year.

Ministers are already facing a difficult task balancing the books ahead of next month’s Budget, while businesses warn that further tax rises could prove disastrous.

The rate of unemployment in the UK remained unchanged at 4.9 per cent in the same period, the ONS said.

August’s 26,000 recorded job losses were more than double the 10,000 forecast for the month by economists. It brought the total of those employed down to 30.2 million.

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A further 19,000 people lost their jobs in July, adding to a total of 39,000 job losses over the last three months.

Shadow Chancellor of the Exchequer, Andrew Griffith MP said: ‘Under Labour, job vacancies are at their lowest level in a decade outside the pandemic, 101,000 payrolled jobs have been lost over the past year, and the claimant count is surging.

‘Labour is, and always has been, the party of unemployment.

‘Businesses are still absorbing the cost of Angela Rayner’s disastrous (Un)Employment Rights Act, and Labour’s refusal to rule out more tax rises is causing huge uncertainty for employers.

‘Only the Conservatives have a plan to get Britain working again. We’ll cut the red tape that makes it harder for employers to hire and deliver the lower, simpler taxes our country needs.’

The UK’s labour market has been shrinking for the past two years, recording rising unemployment while fewer employers are hiring, as 16,000 fewer job vacancies were advertised since the start of the year.

The Bank of England is expected to keep borrowing costs unchanged at 3.75 per cent on Thursday.

The decision will come after official inflation figures are released tomorrow. Economists expect inflation to have gone up from 2.9 per cent to 3.1 per cent, mainly due to rising oil and gas prices.

Thomas Pugh, chief economist at RSM UK, said that despite ongoing weakness, the statistics show signs of stabilisation in the jobs market, which may give the Bank room to increase rates to combat inflation in the coming months.

He said: ‘The Monetary Policy Committee (MPC) has so far relied on the weakness of the labour market as cover for keeping rates on hold, but that position looks increasingly difficult to hold if the labour market stabilises and inflation rises to around 4%.

‘We still expect the MPC to hold rates on Thursday, but a rate hike as early as November is now looking much more likely.’

Work and Pensions Secretary Pat McFadden said the ONS figures ‘show a labour market that remains resilient in the face of significant global economic pressures’.

‘But we know there is more work to do, particularly to ensure young people gain the skills, experience and confidence needed to succeed,’ he added.