Roisin Patton, DWF Employment Expert, Comments on Latest UK Labour Market Statistics

Roisin Patton says: “As UK unemployment climbs to a five-year high, recent estimates indicate a mixed picture for the UK labour market in late 2025.  The UK employment rate was estimated at 75% in October to December 2025.  This is down in the latest quarter, but unchanged on estimates of a year ago.  The UK unemployment rate was estimated at 5.2% in the same period.  This is up in the latest quarter and above estimated of a year ago.  Taken together, the fall in employment alongside rising unemployment suggests emerging pressures in the UK labour market compared with both the previous quarter and a year earlier.

The estimated number of vacancies in the UK has remained broadly flat across recent periods.  Early estimates in November 2025 to January 2026 suggest a small increase of 2,000 to 726,000, compared with August to October 2025. Recruitment activity continues to be suppressed as employers respond to increasing cost pressures and enhanced employee protections.

Annual growth in employees’ average earnings in Great Britain was 4.2% for both regular earnings (excluding bonuses) and total earnings (including bonuses) in October to December 2025. Annual average regular earnings growth was 7.2% for the public sector and 3.4% for the private sector.  The public sector annual growth is affected by some public sector pay rises being paid earlier in 2025 than in 2024.  Employers continue to face sustained pressure to align pay with rising living costs.  Employers are increasingly having to think creatively beyond pay alone, focusing on workplace culture, flexibility, and meaningful engagement to retain employees and foster loyalty where salary increases are constrained.

2026 is set to mark a period of significant adjustment in the employment market, as the Employment Rights Act 2025 moves from Royal Assent into active implementation. The introduction of enhanced worker protections is reshaping employer behaviour, contributing to a more cautious approach to recruitment as organisations assess compliance obligations alongside rising employment costs.  This caution is further reinforced by subdued economic conditions, with the UK economy growing by just 0.1% in the final quarter of 2025, according to the Office for National Statistics.”