The UK's jobs market has lost momentum just as the Bank of England prepares to set interest rates. When the Monetary Policy Committee (MPC) announces its decision at midday on Wednesday 17 September, it will do so against the softest run of labour-market data in several years: payrolled employment is falling, Unemployment has drifted up to 4.9%, and Job vacancies have edged lower again. For households with mortgages, for savers, and for businesses weighing whether to take on staff, the health of the labour market matters because it shapes how much room the Bank has to keep borrowing costs where they are — or, as a hawkish minority argues, to push them higher. This piece examines what the data actually shows, and why hiring has cooled, without pre-judging a decision that has not yet been made.

The numbers behind a softer summer

The most recent official snapshot, published by the Office for National Statistics (ONS) in September, covers the three months to July 2026. It describes gradual weakening rather than collapse. The unemployment rate stood at 4.9% for the May-to-July period, up 0.2 percentage points on a year earlier. The employment rate was 75.1%, a shade lower than twelve months ago, while economic inactivity — people neither in work nor looking for it — eased slightly to 20.9%.

The clearest sign of cooling is in the Payroll figures drawn from HMRC's tax records. The number of employees on company payrolls fell by 84,000 (0.3%) over the three months to July, and was down 101,000 on the year. A provisional "flash" estimate for August put payrolled employment at 30.2 million, some 145,000 lower than a year earlier. These early estimates are frequently revised, so they are best read as a direction of travel rather than a precise count. But successive releases have pointed the same way: fewer people on payrolls than a year ago.

Job vacancies tell a similar story. There were an estimated 702,000 vacancies in the June-to-August period, down 8,000 on the previous quarter. Vacancies have now drifted lower for the better part of three years, having peaked at around 1.3 million in mid-2022, and remain a little below their pre-pandemic level. Taken together, these strands describe a market that is loosening steadily from the employer side rather than through a sudden surge in job losses.

Why hiring has slowed

Several forces are pressing on employers at once. The most frequently cited is the rising cost of employing people. From April 2025 the rate of employer National Insurance contributions rose from 13.8% to 15%, while the threshold at which employers begin paying dropped from £9,100 to £5,000 — a change that disproportionately raised the cost of lower-paid and part-time staff. On top of that, the National Living Wage rose to £12.71 an hour from April 2026, a 4.1% increase on the previous £12.21.

Business surveys suggest these costs have fed directly into hiring caution, particularly among smaller firms. The ONS notes that some employers link reduced recruitment to higher labour costs. The KPMG and REC Report on Jobs, a closely watched survey of recruitment agencies, recorded its 34th consecutive monthly fall in vacancies in its September release, which covers August, though the pace of decline was among the mildest in nearly two years. Notably, that same report also found permanent placements rising for the first time in almost four years — a tentative sign that confidence may be stabilising even as the headline numbers soften.

Weaker underlying Demand is the second factor. With economic growth subdued, many firms are managing existing headcount rather than expanding. The result is a labour market loosening from the employer side — fewer new openings — rather than through a wave of redundancies, although candidate availability has risen as more people look for work.

Pay is still growing faster than prices

For all the signs of cooling, wage growth remains the part of the picture that gives the Bank pause. Regular pay, which excludes bonuses, grew by 3.5% in the year to May-July 2026, while total pay including bonuses rose 3.9%, down from 4.2% in the previous release. After adjusting for inflation, real regular pay was still up around 0.6%.

That matters because the MPC watches pay closely as a gauge of domestically generated inflation. Earnings growth in the mid-3% range is far slower than the near-6% peaks of 2023, but it remains above the roughly 3% pace many economists associate with hitting the 2% Inflation target sustainably. In other words, the labour market is cooling, yet not obviously cold enough to reassure policymakers that pay pressures have passed.

What it means for the decision on 17 September

The Bank Rate currently stands at 3.75%, having been held at the past two meetings. The awaited decision is finely balanced, and it is worth separating what is known from what is expected. Established fact: the labour market is softening and pay growth is easing. Analyst expectation: many economists anticipate the MPC will keep rates unchanged, judging that a weakening jobs market argues against tightening further.

The complication is inflation. Consumer prices rose 2.9% in the year to July 2026, up from 2.6% in June, with services inflation at 3.4% — both above the 2% target. (August's figures were still awaited as this article was written.) That has left a minority of MPC members arguing the opposite case. At the July meeting the committee voted 6-3 to hold, with three members preferring a rise to 4%. Unusually, the visible dissent has been hawkish, reflecting concern that above-target inflation could become entrenched.

So the cooling labour market functions as a counterweight. It gives the majority a reason to resist calls for higher rates, but does not, on its own, build the case for a cut while pay and services inflation stay elevated. How the committee weighs these competing signals — a Job Market losing steam against prices still running above target — is precisely what will emerge when the minutes are published alongside the decision. Until then the direction is genuinely uncertain, and readers should treat any single forecast with caution.