Published June 11^th 2025

May UK Employment: Layoffs Rise as Wage Pressures Mount

The UK’s latest PAYE real-time data offer a clear and unsettling signal: employment is falling fast. In May alone, payrolls shrank by over 109,000, with downward revisions deepening April’s losses. While headline labour market surveys appear less alarming, their reliability is increasingly questioned, with low response rates and delayed revisions undermining their authority. By contrast, the PAYE data—drawn directly from employer payrolls—show a sharp and persistent contraction in employment since the autumn. This divergence matters. It suggests that job losses are not just a statistical quirk but part of a broader, intensifying economic slowdown.

Cyclical Sectors Lead the Decline

Employment is not only falling in public services—where May brought a notable reduction in health and social care roles—but is retreating more critically across key private-sector industries. These aren’t isolated losses in marginal sectors. The largest declines are concentrated in cyclical areas, where job creation flourishes during expansionary phases and recedes rapidly when the economy turns.

The hospitality sector, encompassing restaurants and hotels, has contracted by nearly 4% in just seven months. Employment in the technology sector, often viewed as resilient, is down almost 3%. Construction and professional services have also seen marked declines, while retail and manufacturing—pillars of private-sector employment—are likewise scaling back. The only mild growth has been in the arts and recreation sector, which remains too small to materially offset the broader weakness.

Why Firms Are Cutting Now

This widespread retrenchment is being driven by deeper structural pressures. For businesses, especially those reliant on lower-paid workers, rising costs are hitting hard. Increases in employer National Insurance contributions and the minimum wage have pushed staff costs beyond what can be recovered through pricing. Meanwhile, consumer appetite for further price hikes is dwindling, forcing firms to turn inwards for cost savings. For many, that means reducing headcount.

One Firm’s Cuts Are Another’s Revenue Loss

What appears rational for a single business becomes harmful when replicated across the economy. Job losses in retail translate into lower incomes, curbing discretionary spending, which then feeds into further cutbacks in sectors like hospitality and entertainment. As those employees in turn reduce spending, the contraction ripples onward. Each company’s wage bill is someone else’s revenue.

This isn’t merely theoretical. The economy is already caught in a negative feedback loop. Without external intervention, such cycles tend to deepen—until policy action breaks the momentum.

Waiting for a Policy Break

Historically, the necessary break comes through either monetary easing or fiscal stimulus—injecting spending power into households and reversing the cycle. Yet, so far, neither is materialising. The Bank of England remains in wait-and-see mode. But if the data continue on their current trajectory, it may be forced to deliver rate cuts that go well beyond current market pricing.

Understanding this dynamic is essential. Economic downturns often begin in slow motion. Cost-cutting becomes demand destruction, which then feeds further cost-cutting. What begins as rational business discipline morphs into macroeconomic fragility. Recognising that the UK may already be in this phase is critical—not only for markets but for policymakers who may soon have no choice but to intervene.