The UK labour market weakened significantly at the end of 2025, with tens of thousands of jobs disappearing from company payrolls according to official statistics released today.
Sharp Decline in Employment Figures
The Office for National Statistics (ONS) reported that the number of employees on payrolls fell by 33,000 in November. Provisional estimates for December indicate an even steeper reduction of 43,000 positions, painting a concerning picture for the end of the year.
Liz McKeown, Director of Economic Statistics at the ONS, stated that the declines over the past year have been concentrated in the retail and hospitality sectors, reflecting persistently weak hiring activity by businesses across the country.
While the unemployment rate held steady at 5.1 per cent, this marks a notable increase from the 4.4 per cent recorded when the Labour government took office in July 2024. Job vacancies have remained broadly flat in recent months, showing only a slight uptick after several quarters of contraction.
Government Response and Political Fallout
In response to the challenging figures, Work and Pensions Secretary Pat McFadden unveiled further details of the government's £1.5 billion youth employment scheme. The initiative, launching this month, aims to place hundreds of thousands of young people into paid work or training.
"Today's figures show there are 513,000 more people in work compared to this time last year, but also highlights why we must go further, especially for our young people," McFadden said.
The scheme will offer fully subsidised paid work placements for unemployed 18 to 21-year-olds at major firms including EON, JD Sports, Tesco, TUI, KFC, Leonardo Hotels, and The Gym Group. An initial phase will place over 1,000 young people in England, Scotland, and Wales before a nationwide roll-out.
This forms part of a broader government effort to tackle the crisis of 'Neets' – young people not in employment, education, or training. A review into youth inactivity, led by former Health Secretary Alan Milburn, is expected to publish its full recommendations later this year.
Shadow Business Secretary Andrew Griffith criticised the data, calling it a "terrible scorecard for this government".
Economic Implications and Bank of England Outlook
The latest labour market data is likely to influence the Bank of England's Monetary Policy Committee (MPC) as it considers further interest rate cuts. The MPC reduced the base rate to 3.75 per cent in December 2025.
Regular earnings growth, excluding bonuses, slowed to 4.5 per cent in the three months to November. Including bonuses, the figure was 4.7 per cent. Economists suggest that this moderating wage growth could encourage the MPC to support another reduction in the first half of 2026.
James Smith, UK economist at ING, noted that "rapidly" falling wage growth and rising unemployment would likely limit consumer spending, potentially weakening demand and allowing inflation to fall back to the Bank's two per cent target more quickly.
Yael Selfin, Chief Economist at KPMG UK, said the data "strengthens the case" for a measured approach to cutting rates, suggesting that while the labour market is weakening, a significant deterioration justifying aggressive cuts is not yet evident. She added that further weakening should "create room for interest rate cuts in subsequent meetings."
The market awaits fresh inflation figures from the ONS, due to be published tomorrow morning, which will provide further crucial context for the UK's economic trajectory.
