Fall in unemployment likely to be short-lived as business costs rise

The latest ONS labour market figures show unemployment has fallen, offering a brief positive signal after recent concerns about the jobs market. However, this improvement may not last. 

The data covers the period to the end of February. Since then, global uncertainty has increased sharply. This has driven up business costs for UK employers in a very short time. The shock is likely to push unemployment higher in the coming months. 

Rising costs from multiple pressures

April brought several key reforms under the Employment Rights Act 2025 into force. These measures, alongside the increase to the National Minimum Wage, have raised the cost of employing people. 

The reforms add to the pressures facing employers who are already dealing with geopolitical instability and rising costs. The CIPD says government needs to work with businesses on the measures in the Employment Rights Act 2025 that are still to be decided in secondary legislation. This would help ensure these changes do not push up business costs further.

Pay growth continues to slow

Pay growth has fallen to its lowest level since the end of 2020. Even so, employers are likely to see staff seeking higher pay awards as the cost of living starts to creep up once again. 

This puts employers in a difficult position. They face higher employment costs at a time when workers need pay to keep pace with rising prices. The coming months will test how well businesses can balance these competing pressures while maintaining their workforce.