A cooler jobs market with new choices for HR

The latest data from the Office for National Statistics signals a labour market that’s cooling. Unemployment has edged up, vacancies have fallen for the 39th consecutive quarter, and pay growth is easing from its 2023 peak. It’s a gradual return to balance after years of turbulence, the sort of market where HR teams can pause, reassess, and plan rather than firefight.

The heat is fading from hiring

Recruiters are beginning to feel the difference. The KPMG and REC Report on Jobs shows starting salaries for permanent hires rising at the slowest pace since early 2021, alongside softer demand for temporary staff. Many HR directors say the frenzy to match or outbid competitors has eased, replaced by more thoughtful hiring decisions and a stronger emphasis on role fit.

Employers also tell the Bank of England’s regional Agents that recruitment difficulties are easing. Pay deals expected for 2025 cluster around 3–4%, a marked shift from the double-digit uplifts of 2023. For HR leaders, that opens the door to reset reward strategies around progression and affordability rather than short-term retention fixes.

Not one labour market, but many

While the overall market looks calmer, the picture differs widely by industry. Research from Indeed’s Hiring Lab shows that job postings in the UK have dipped below pre-pandemic levels and remain weaker than in most major economies. Yet some segments – education, property, healthcare – remain significantly above 2019 baselines. The challenge for HR is to design workforce plans that mirror those contrasts rather than applying blanket assumptions across the business.

In practice, that means creating tailored recruitment approaches for each talent stream. A flexible workforce model for care roles, for instance, will require different incentives and timelines than digital or data positions. Treating all hiring as one market will blur priorities and inflate costs.

A bigger opportunity: bringing people back in

Beyond hiring, the greatest potential lies in re-engaging those who have stepped away from work. The UK still has a large pool of economically inactive adults, much of it driven by long-term sickness. The Learning and Work Institute estimates around 740,000 more working-age people are inactive than before the pandemic, while analysis from the Institute for Employment Studies highlights persistent health-related employment gaps.

This is where people strategy becomes social strategy. Flexible start points, phased hours and improved occupational health pathways are mechanisms for rebuilding the workforce. The organisations that make re-entry easy will gain access to a section of talent that competitors overlook.

Pay pressure finds a new equilibrium

ONS figures show regular pay rising around 4.7% year-on-year, with real pay now growing modestly as inflation falls. Data from Brightmine’s pay award index pegs median settlements at 3% in the three months to August, suggesting reward teams have room to balance internal equity with external competitiveness.

This steadier environment allows for more creative total reward structures, combining smaller base increases with targeted benefits such as health, travel or childcare support. In local markets where public sector settlements remain higher, private employers will need to stay alert to potential knock-on effects on retention.

What this means for your people strategy

• Hiring. Move from speed to precision
  Use the breathing space to sharpen job design and align selection to business value. The shift from scarcity to balance is a chance to broaden candidate pools and improve diversity rather than simply raising entry bars.

• Retention. Refresh the risk map
  While wage-driven turnover has softened, other risks are emerging, from burnout to career stagnation. Reinvest in progression pathways and learning opportunities for roles with long onboarding cycles or limited market substitutes.

• Reward. Balance base, variable and benefits
  Anchor base pay to current affordability and market data. Use variable pay and meaningful benefits to protect key talent groups without triggering unsustainable cost growth.

• Participation. Treat absence from the labour market as a design problem
  Create structured returner programmes, remove friction from flexible-work approvals, and link wellbeing support directly to workforce planning. Inclusion in this context means designing work that more people can actually do.

• Workforce planning. Scenario test headcount and hours
  Plan for steady or slightly lower headcount while modelling productivity gains through upskilling and automation. That approach keeps organisations agile if demand changes later in 2025.

• Employee relations. Fix hotspots early
  Monitor scheduling conflicts and workload concerns, and empower line managers to resolve them quickly. Prevention costs far less than disruption.

The market is cooler, but not cold. HR teams that use this quieter moment to rethink hiring and design genuinely flexible work will be better positioned for the next cycle of growth.

HRD Connect Curators of the New Business Landscape. HRD Connect produces industry-recognized content for senior HR leaders. Through articles, case studies, Q&As, podcasts, events, and more, we offer truly progressive and cutting-edge insights designed to help people leaders address core HR challenges and add greater value to their business.

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