Labour Market Overview, UK: July 2026
The latest labour market figures suggest the UK employment market is beginning to stabilise, although hiring activity remains subdued. Payroll employment has levelled off, vacancy declines have slowed, and real wages continue to outpace inflation. While employers are still recruiting cautiously, the data indicate the pace of the labour market slowdown may be easing.
Employment Trends: Payroll Employment Levels Off
Estimates from HM Revenue & Customs (HMRC) show that the number of payrolled employees in the UK fell by 85,000 (0.3%) between May 2025 and May 2026. However, employment was broadly unchanged on the month, increasing by just 3,000.
Looking at the March to May 2026 period, payrolled employment declined by 90,000 (0.3%) compared with a year earlier and by 30,000 (0.1%) over the quarter.
Early estimates for June 2026 continue this pattern, with payroll employment falling by 71,000 (0.2%) over the year but decreasing by only 4,000 on the month, leaving the total at approximately 30.3 million employees. These figures remain provisional and may be revised as additional payroll data becomes available.
The employment rate for people aged 16 to 64 increased slightly to 75.1%, while the unemployment rate remained at 4.9%. Economic inactivity also edged down to 20.9%, suggesting the wider labour market remains relatively resilient despite slower hiring activity.
Vacancies and Hiring: Decline Continues but Appears to Be Slowing
The number of job vacancies continued to fall during the latest quarter, although the pace of decline has eased.
Early estimates for April to June 2026 show vacancies decreasing by 7,000 (0.9%) to 712,000. This follows larger quarterly declines reported earlier in the year and may indicate that the pace of hiring reductions is beginning to slow.
Despite this improvement, vacancy numbers remain well below the levels seen in recent years, reflecting continued caution among employers as they manage costs and assess future demand.
Recruitment demand remains strongest in specialist markets where skills shortages persist, including healthcare, engineering, technology and logistics.
Pay and Earnings: Real Wage Growth Remains Positive
Annual growth in average earnings remained steady during March to May 2026, with regular pay increasing by 3.4% and total pay rising by 4.3%.
Regular earnings grew by 5.5% in the public sector compared with 2.9% in the private sector, although public sector comparisons continue to be influenced by the timing of annual pay awards.
After adjusting for inflation, earnings continued to grow in real terms. Using CPIH, regular pay increased by 0.3%, while total pay rose by 1.1%, providing some improvement in employees' spending power.
Labour Disputes and Claimants
The Claimant Count increased slightly during June to an estimated 1.689 million, although it remains below the level recorded a year earlier.
Industrial action also eased considerably, with approximately 26,000 working days lost because of labour disputes during May 2026, a significant reduction compared with previous months.
What This Means for Recruiters
The latest figures suggest the recruitment market may be entering a more stable phase, although employers remain cautious and overall hiring activity continues to soften.
Vacancies are still trending downwards, but the rate of decline has slowed considerably, while payroll employment has remained broadly flat over recent months. For recruiters, this points to a market that is becoming more selective rather than one experiencing a sharp deterioration.
Key Opportunities for Recruitment Agencies
- Focus on specialist and skills-short sectors where hiring demand remains strongest.
- Help clients develop targeted hiring strategies to secure high-quality candidates.
- Support employers with workforce planning and retention as recruitment becomes more selective.
- Highlight continued real wage growth when attracting experienced professionals in competitive markets.
Although recruitment volumes remain below recent highs, the latest labour market data suggest conditions are becoming more stable. Agencies that provide sector expertise, market insight and consultative recruitment solutions are likely to be well placed as employer confidence gradually improves.
Office for National Statistics (ONS), released 21 July 2026, ONS website, statistical bulletin, Labour market overview, UK: July 2026
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