UK Labour Market Update – July 2026

UK Labour Market Remains Resilient Despite Signs of Hiring Slowdown

The Office for National Statistics (ONS) published its latest labour market update on 21 July 2026, showing that the UK labour market remains relatively stable but continues to cool.

Key figures

• Employment rate: 75.1% (March to May 2026), up 0.1 percentage points on the previous quarter but down 0.1 percentage points compared with a year earlier.
• Unemployment rate: 4.9%, down 0.1 percentage points on the quarter but up 0.2 percentage points year-on-year.
• Economic inactivity rate: 20.9%, a slight decrease both quarterly and annually.
• Pay-rolled employees: The number of pay-rolled employees fell by 90,000 (0.3%) over the year to May 2026, indicating continued caution in employer recruitment.
• Job vacancies: Vacancies decreased by 7,000 on the quarter to 712,000, continuing the gradual easing in labour demand.
• Average earnings: Regular pay (excluding bonuses) increased by 3.4% annually, while total pay (including bonuses) rose by 4.3%, suggesting wage growth continues to moderate.

What this means for employers

While employment remains resilient, the decline in payrolled employees, falling vacancies and unemployment remaining above last year’s level suggest employers are continuing to take a measured approach to recruitment. Although hiring pressures may be easing in some sectors, skills shortages are still likely to affect specialist and hard-to-fill roles.

For HR teams, the focus is likely to remain on:

• Retaining key talent.
• Strategic workforce planning.
• Upskilling and developing existing employees.
• Managing employment costs while maintaining employee engagement and productivity.

The latest figures reinforce the importance of balancing workforce growth with productivity, skills development and employee retention as organisations continue to navigate economic uncertainty alongside significant employment law reforms.

Need support with recruitment, workforce planning or employee retention? Get in touch with the Kestrel HR team to discuss how we can help your organisation respond to the latest labour market trends.