UK labour market data for Q1 2025 offers a complex narrative for wealth managers, as declining vacancies, persistent wage growth, and broader macro uncertainty raise questions around monetary policy direction, inflation risk, and asset allocation.
Vacancies have now fallen for a record 33 consecutive quarters, with the latest figures from the Office for National Statistics (ONS) showing a drop of 26,000 in the three months to March. For the first time since the post-COVID rebound, the number of open roles has dipped below pre-pandemic levels—a key psychological and economic milestone.
Danni Hewson, Head of Financial Analysis at AJ Bell, described the development as a sign that the post-pandemic momentum is fading:
“The last remnants of a post-pandemic boom that helped the UK stay resilient… have finally ended. It’s an important milestone, especially as businesses made staffing decisions ahead of National Insurance hikes and the new National Living Wage.”
Labour data under the microscope
The credibility of the labour market data itself has come under fire. Lindsay James, Investment Strategist at Quilter, stressed that wealth managers should approach current numbers with caution:
“The ONS labour force survey has come under increasing scrutiny. While this is still the best-available insight, its reliability is notably weaker than in previous cycles.”
That said, the data does point to a market in flux. While the unemployment rate held at 4.4%, the early estimate of payrolled employees in March showed a notable decline of 78,000—year-on-year down by 70,000. James noted this could be the last “solid” report for some time as policy changes and global uncertainty begin to weigh more heavily.
Wages outpacing inflation: cause for caution or comfort?
Wage growth remains resilient. Regular pay (excluding bonuses) rose 5.9% in the three months to February, more than double the 2.8% inflation rate over the same period. For wealth managers, this divergence signals conflicting pressures:
- On one hand, real wage growth supports consumption and may offer a buffer for domestic-facing equities.
- On the other, elevated wage growth can keep core inflation stickier than anticipated, influencing the path of interest rates.
Derrick Dunne, CEO of YOU Asset Management, acknowledged the positive optics of wage growth but warned of its implications for monetary policy:
“Persistently rising wages are certainly positive… But they’re also likely to support rising prices. The Bank of England may choose to ‘look through’ near-term inflation, but wage pressures can’t be ignored forever.”
Policy pivot still on track?
Markets remain confident that the Bank of England will press ahead with a rate cut in May. Luke Bartholomew, Deputy Chief Economist at Aberdeen, believes there is nothing in the latest data to derail that trajectory:
“Wage growth is slowly moderating, and international energy prices have fallen sharply. These should allow the Bank to begin cutting rates and potentially deliver further reductions later in the year.”
However, Bartholomew warns the recent increase in the National Living Wage may slow wage disinflation and create challenges for policymakers.
Employers facing cost and productivity pressures
Beneath the headline figures, structural challenges persist. Julia Turney, Partner at BW, noted that rising employer costs—both from NI increases and poor employee health—are pressuring businesses:
“Our research shows nearly half of UK workers have taken extended sick leave in the past five years. With economic inactivity high and NHS delays ongoing, productivity remains under strain.”
For wealth managers, these dynamics signal a tougher operating environment for mid-cap and labour-intensive sectors, while highlighting the long-term benefits of investing in firms with strong operational efficiency and employee support systems.
Navigating an uncertain global backdrop
With further tax rises anticipated in the autumn and global trade volatility increasing—particularly in light of US tariff threats—Lindsay James believes UK businesses are becoming increasingly hesitant to expand:
“Rising payroll costs, economic uncertainty, and international headwinds are weighing on hiring intentions. The OBR’s optimistic GDP forecasts for 2026 now face significant credibility challenges.”
This macro uncertainty makes asset selection and portfolio diversification all the more important. Exposure to companies with pricing power, strong balance sheets, and global revenue streams could help buffer volatility stemming from the UK’s domestic slowdown.
What wealth managers should watch
As wage inflation collides with softening employment and mounting corporate costs, the months ahead could be pivotal. Key considerations include:
- Monetary policy timing: A May rate cut remains likely, but wage dynamics could shape the pace of further easing.
- Sectoral resilience: Consumer strength may support retail and services in the short term, but higher wage bills could pressure margins.
- Labour health trends: Persistent economic inactivity could limit productivity and delay recovery in output metrics.
- Geopolitical risk: The full effects of US tariffs and upcoming UK fiscal decisions could inject further volatility.
For now, the UK economy is walking a fine line between resilience and retraction. Staying nimble, keeping a close eye on forward-looking indicators, and maintaining flexibility in portfolio construction will be essential in this next phase of the cycle.
Tomorrow we’ll get the latest inflation data. You can find all the news and views following that announcement right here on Wealth DFM.
