- Unemployment has reached its highest level in nearly five years.
- Wage growth has slowed to its lowest pace in almost four years.
- Young jobseekers appear to be feeling the strain the most.
The UK unemployment rate has climbed to 5.2 per cent in the three months to December, marking the highest level in nearly five years and pointing to a cooling labour market. The latest Office for National Statistics figures also show wage growth slowing sharply, adding to signs that the UK jobs market is losing momentum as economic growth weakens.
Businesses appear to be holding back on hiring as costs rise, with higher employer National Insurance contributions and a rise in the minimum wage following Chancellor Rachel Reeves’ 2024 Budget widely seen as adding pressure. The combination seems to be prompting firms to slow recruitment and hold off on replacing staff who leave.
A softer jobs market takes shape
The ONS said the figures reflect weaker hiring activity, alongside a rise in the number of people actively looking for work. Economic statistics director Liz McKeown reportedly said, as quoted in a news report, that vacancies have been broadly stable since mid-2025, but the number of unemployed people per vacancy has climbed to a post-pandemic high. Redundancies are also edging up.
Annual wage growth slowed to 4.2 per cent, the weakest pace in almost four years, even as public sector workers saw stronger pay rises. Alice Haine, a personal finance analyst at Evelyn Partners, reportedly said, as quoted in a news report, that public sector pay grew by 7.2 per cent on average.
Economists suggest softer wage growth could give the Bank of England room to consider further interest rate cuts as it continues to manage inflation, which remains above the 2 per cent target. Paul Dales, chief UK economist at Capital Economics, reportedly said, as quoted in a news report, that the trend supports the case for at least a couple more rate cuts. Jo Thorne from Wealth Club reportedly said, as quoted in a news report, that the economy, employment and wages all appear weak.
Young workers facing a tougher start
The political debate around the figures has already sharpened. The Conservatives said Labour had overseen what they described as an unprecedented run of monthly increases in unemployment, calling it the predictable result of poor economic decisions. Shadow work and pensions secretary Helen Whately reportedly said, as quoted in a news report, that young people are being hit hardest as entry-level roles disappear.
For many graduates, the reality appears challenging. Lucy Gabb, who graduated from Cambridge in July 2025 and is trying to enter publishing, reportedly said, as quoted in a news report, that entry-level roles are extremely competitive and often demand experience that is difficult to gain while studying. She is working in a café in London while applying for jobs and has submitted more than 50 applications, with only one face-to-face interview so far.
She reportedly said, as quoted in a news report, that constant rejections and silence from employers can feel “soul-destroying”, adding that job hunting dominates conversations among her friends.
The latest figures paint a picture of a labour market that is not collapsing but clearly losing steam, with more people chasing a limited pool of roles as businesses tread carefully in a slower economy.
