The UK labour market is showing clear signs of strain, with unemployment rising sharply over the past year and young people bearing the brunt of the downturn. New figures highlight a slowdown in hiring, falling payroll numbers and growing concern about the reliability of official data used to track employment trends.
According to the latest data from the Office for National Statistics, the unemployment rate increased to 5.1% in the three months to October. This compares with 4.3% over the same period last year, confirming a steady upward trend in joblessness across the economy.
The rise takes unemployment to its highest level since January 2021, just below the peak reached during the Covid-19 pandemic. Analysts say the figures reflect a combination of economic uncertainty, higher employment costs and delayed business decisions.
Young workers hit hardest
Younger workers have been particularly affected by the slowdown. The number of unemployed people aged 18 to 24 rose by 85,000 in the three months to October, the most significant increase since November 2022. This sharp rise has intensified concerns about youth unemployment and long-term scarring effects for those struggling to enter the workforce.
The ONS data covers the period before the recent Budget and suggests that many employers chose to slow or freeze recruitment while awaiting clarity on the Chancellor’s tax and spending plans. Businesses have also pointed to the lingering impact of last year’s Budget, when increases to national insurance contributions made hiring more expensive.
These pressures are reflected in payroll data. Estimates for employees on company payrolls decreased by 149,000 in October compared to the same period a year earlier, representing a 0.5% decline. Liz McKeown, director of economic statistics at the ONS, said the figures point to “a weakening labour market”, with fewer firms taking on new staff.
In response to rising youth unemployment, the Department for Work and Pensions has commissioned a review led by former health secretary Alan Milburn. The review will examine why an increasing number of young people are not in education, employment, or training, with Milburn describing his panel of experts as a “coalition of the concerned”.
Pay growth slows as uncertainty grows
While more people are out of work, those in employment are still seeing wages rise faster than prices, although the pace of pay growth is easing. Average wage growth, excluding bonuses, stood at 4.6% between August and October 2025.
The picture differs sharply between the public and private sectors. Pay growth in private companies slowed from 4.2% to 3.9% over the period. In contrast, earnings growth for public sector workers accelerated from 6.6% to 7.6%, reflecting the timing of Government pay awards earlier this year.
These developments come as attention turns to the Bank of England’s next interest rate decision on 5 February 2026, after it cut Bank Rate to 3.75% in December. Inflation is 3.2% on the latest CPI measure, still above the Bank’s 2% target, which keeps the case for further cuts finely balanced.
The quality of the underlying labour market data has also been scrutinised. A recent review raised concerns about the reliability of ONS statistics, particularly the Labour Force Survey, which has suffered from persistently low response rates. Only around one in four businesses responded to the latest survey, increasing uncertainty around the headline figures.
Politically, the data has triggered renewed debate. Work and Pensions Secretary Pat McFadden said the figures “underline the scale of the challenge we’ve inherited”, pointing to a £1.5bn investment to deliver 50,000 apprenticeships and 350,000 workplace opportunities for young people. Meanwhile, shadow work and pensions secretary Helen Whately warned that “growth-killing policies” risk further job losses in the run-up to Christmas, leaving more families facing financial insecurity into the New Year.
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