Britain's labour market remained "finely balanced" in the three months to July 2026, according to the latest official figures, as steady headline employment numbers masked rising redundancies, falling vacancies and stagnant pay growth.

Data from the Office for National Statistics showed the employment rate held at 75.1% and unemployment at 4.9%, both unchanged on the previous quarter. Redundancies edged up by 1,500 to 114,000 over the same three-month period, while the number of payrolled employees fell by 101,000 over the year to July.

Job vacancies dropped by 8,000 over the quarter to 702,000, continuing a run of declines that economists say points to weakening employer confidence.

Youth unemployment remained a particular concern, standing at 14.4%. Although the figure had eased slightly on the quarter, it remained markedly higher than the 11.9% recorded a year earlier.

Pay growth also lagged behind the cost of living. Real pay rose by just 0.8% against CPI inflation, down from 1.2% over the same period last year, with real pay growth in the private sector limited to a mere 0.1%.

Responding to the figures, TUC general secretary Paul Nowak said the picture "remains finely balanced", with jobs and pay under continued pressure. Supporting young people into work needed to remain a priority, he said, and the government should expand the Jobs Guarantee scheme to give more young people paid work experience. Stronger growth was the key, he added, and recent progress on GDP had to be sustained by releasing "the handbrake" on public investment to break the UK's cycle of economic stagnation.

The Institute of Economic Affairs offered a starker assessment. Senior economist Valentin Boboc said payroll employment had fallen by a further 26,000 in August alone, leaving 145,000 fewer employees on payrolls than a year earlier, while annual median pay growth had slowed to 3.5%. The weakness was being felt nationwide, he said, with payroll employment down on a year ago in every UK nation and English region except Northern Ireland; London alone had recorded a 1% fall. Fewer people in work and slowing pay growth would make it harder to grow tax revenues and repair the public finances, he warned, and the figures should be treated as a clear warning against the government "loading further costs and restrictions onto employers" at the coming Budget. Britain needed businesses hiring and investing, he said, not more reasons to hold back.

His colleague, economics fellow Julian Jessop, said the economy had now lost more than 200,000 payroll jobs over the past two years. "This might be good for the productivity data," he said, "but it is bad for real people, especially the young struggling to find work."

The Institute of Directors also pointed to a softening market. Alex Hall-Chen, its principal policy adviser for employment, said the number of payrolled employees was down 26,000 on the month and 145,000 on the year, while vacancies had fallen by 8,000 on the quarter and 36,000 on the year. The IoD's own research found more business leaders expected to cut headcount over the coming year than to increase it, she said. Alongside subdued economic confidence, employers were contending with a series of policy changes that had raised the cost and risk of hiring, including the Employment Rights Act, above-inflation rises in the National Living Wage, and higher employer National Insurance contributions.

The government's acknowledgment that the cost of doing business needed to be tackled was welcome, Hall-Chen said, but that rhetoric now had to be matched by concrete steps in next month's Budget. The IoD wants smaller employers, those with fewer than 250 staff, exempted from trade union access provisions; the reference period for the new entitlement to guaranteed hours extended to 52 weeks, with the low-hours threshold set at eight hours; and any further rise in the National Living Wage kept below two-thirds of median income, to protect entry-level jobs. Without meaningful action, she warned, there was a real danger that labour market conditions would continue to weaken, with employers remaining unable to create new jobs.

For households, the figures were being read alongside this week's Bank of England interest rate decision. Kevin Brown, savings expert at Scottish Friendly, said flat wage growth left the Bank "with little fresh reason to change course" ahead of Thursday's announcement. Stability in earnings should not be mistaken for the inflation problem having gone away, he said; how far pay really stretched would depend heavily on Wednesday's CPI figures. An unchanged wage reading was unlikely on its own to strengthen the case for an immediate rate rise, he said, but a hotter-than-expected inflation reading could add to the Bank's caution about the path ahead. Whatever Thursday brought, he added, building a financial buffer, considering investing where possible and ensuring savings earned a competitive rate remained sensible priorities for households.

Joanne Frew, global head of employment and pensions at DWF, struck a more measured tone, describing a labour market "proving relatively resilient despite ongoing economic uncertainty". The employment rate had fallen 0.1% on the year but was largely unchanged on the quarter at 75.1%, she noted, while unemployment, up 0.2% on the year at 4.9%, was also largely unchanged on the quarter — a picture, she said, of "gradual cooling rather than significant change".

Vacancies had fallen for the latest quarter, Frew added, with early estimates for June to August suggesting a drop of 8,000 to 702,000 compared with March to May. Survey feedback suggested rising labour costs were prompting some smaller employers to scale back recruitment, she said, with hiring intentions remaining subdued amid economic uncertainty and workplace reform.

Annual growth in average earnings stood at 3.5% in the three months to July and had been broadly stable over the previous five three-month periods, following a year of slowing growth, Frew said. That continued moderation suggested many employers had limited scope to meet pay expectations while managing ongoing cost pressures, even as competition for talent persisted.

Looking ahead, Frew pointed to inflation rising to 2.9% in the year to July, driven largely by higher energy costs, as a sign that cost pressures remained significant despite pockets of resilience elsewhere in the economy. Employers were also preparing for the next phase of the Employment Rights Act 2025, with reforms due to take effect at the end of October, and for further changes to unfair dismissal rights expected in January 2027 — including a reduction in the qualifying period for ordinary unfair dismissal claims to six months and the removal of the cap on compensation. Against that backdrop, she said, employers were likely to remain cautious and carefully targeted in their approach to recruitment, workforce planning and reward in the months ahead.