February 2025 UK Labour Market Report: Pay growth weakens at start of 2025

Stay informed about the latest developments insights into the UK job market with the KPMG and REC's ‘UK Report on Jobs’, featuring exclusive insights from recruitment consultancies like Redline Group. This comprehensive monthly report provides in-depth assessments of key workforce dynamics shaping business decisions today.

Key Highlights from the February 2025 Data:

• Pay inflation weakens: Permanent salary increases softened, though employers remain willing to offer competitive salaries for top-tier, in-demand candidates.
• Vacancies: Both permanent and temporary/contract vacancies experienced a decline.
• Rising Candidate Availability: The talent pool continues to expand, providing businesses with greater hiring flexibility.

Labour Market Insights

Demand for workers has declined but has not disappeared. In a rapidly evolving economic landscape, businesses must remain agile in their hiring and financial strategies. Since the COVID-19 pandemic, employers have navigated various challenges, including inflation, interest rate fluctuations, the cost-of-living crisis, and supply chain disruptions. However, there are positive indicators for 2025.

Jon Holt, Group Chief Executive and UK Senior Partner KPMG, noted

“Businesses continue to hold back on recruitment, leading to permanent and temporary placements falling steeply again in January. "While firms are still willing to pay for top talent, increased staff availability weighed on pay growth. This cooling may have encouraged the Bank of England’s decision to cut rates last week. Business leaders are ready for growth signals and gradual rate cuts could start to translate into greater confidence to plan and invest.“

Sector-Specific Insights

The UK job market continues to experience skill shortages in key sectors, particularly in:

• Engineering & Technology: Skills shortages in areas like DSP Engineers, Electronics Engineers, Engineering Management, Full Stack Software, C#, Electrical Engineers, Software, Data Science, Technical Sales and Technical Product Management.

Market Statistics

According to the Office for National Statistics (ONS), the UK recorded 812,000 job vacancies between October and December 2024, marking a decrease of 24,000 vacancies. However, demand remains 2% above pre-pandemic levels.

Neil Carberry, REC Chief Executive, summed up the report, stating:

“Businesses entered the year uncertain on the growth path, and that has driven a "wait and see" approach to hiring. Around the country, REC members report that clients have plans and are hopeful for the year ahead - but firms are slowing investment until they see more momentum in the economy. Last week's move on interest rates was timely as a way of boosting confidence. The more central role of growth in Government thinking since the Chancellor's speech last month will also help. But it takes time, and real action, to build business confidence. As well as the monetary stimulus to growth, it's time for greater clarity on how the Government will use its industrial strategy to drive the growth of the whole economy

Looking into 2025 and beyond

Economic conditions are expected to improve, with growth as the Government’s top priority. Some analysts project that UK GDP growth could rise to 1.7% in 2025, supported by the fiscal stimulus announced in the UK Autumn Budget, which could temporarily boost domestic demand.

While employer confidence remains cautious, the long-term outlook suggests gradual improvements in economic conditions and hiring trends. Businesses that prioritise adaptability, workforce development, and strategic talent planning will be best positioned to capitalise on emerging opportunities as market stability returns.

With inflation moderating toward the Bank of England’s 2% target, the likelihood of additional interest rate cuts in spring 2025 increases. The Bank of England’s Governor Andrew Bailey told the Financial Times in an interview in December that four interest rate cuts are on the horizon for 2025, provided inflation continues to cool. This would provide a much-needed boost to the economy, reducing borrowing costs and stimulating both spending and investment.

But the economy may not evolve as expected, because there could be global shocks. For example, global trade tariffs or developments in the Middle East could impact some prices.

Stay ahead of the latest labour market trends with the monthly report—a must-read for business leaders navigating today’s evolving workforce landscape.

At Redline Group, we change lives every day, building world-class teams for technology companies. As one of the UK’s most trusted recruitment specialists in Electronics and High Technology, we offer expert solutions for professional Contract, Permanent, and Executive positions. With four decades of experience, we are perfectly positioned to future-proof your hiring needs.

For tailored recruitment advice or to learn more about this month’s labour market report, contact info@redlinegroup.com or 01582 450054