The number of people in work in the UK fell for a second month in a row in December as official figures pointed to weakening demand for labour and slower wage growth, particularly in retail and hospitality.
Unemployment remained elevated at just over 5%, while growth in private sector earnings slowed to its lowest rate in five years, adding to signs that the labour market had lost momentum at the end of 2025.
There were, however, early indications that the supply of labour was not drying up, with more working-age adults classed as active in the workforce despite high levels of sickness-related inactivity.
Falling employment concentrated in shops and hospitality
Data from the Office for National Statistics (ONS), the UK’s official statistics agency, showed the number of employees on payrolls fell by 43,000 in December, the largest monthly drop since November 2020. The total number of people employed stood at around 30.2 million.
The reduction was not evenly distributed, with the ONS saying the biggest declines were in retail, hotels, restaurants and bars, sectors that had been among the most vigorous hirers earlier in the post-pandemic period. The weaker hiring activity in these areas suggested firms were responding to softer consumer demand and cost pressures.
Private sector regular earnings growth, excluding bonuses, eased to 3.6% in the three months to November. That was down from previous readings and its weakest pace in at least five years, according to the ONS, while wage growth including bonuses also edged lower.
Liz McKeown, director of economic statistics at the ONS, said employment had fallen again with reductions over the last year concentrated in retail and hospitality, and that wage growth in the private sector was slowing while public sector pay rises continued to support overall earnings.
Alongside softer earnings, the overall number of advertised vacancies remained broadly flat over the last six months, following a long period of decline, McKeown said. That suggested employers had become more cautious about recruiting new staff.
Economists pointed to a complex picture in the labour market. Martin Beck, chief economist at advisory service WPI Strategy, noted that more people were counted as active in the workforce, with the overall share of working-age adults classed as inactive close to a near six-year low despite high sickness-related inactivity.
Unemployment holds at multi-year high as youth hit hardest
Unemployment remained at around 5.1% in the three months to November, unchanged on the previous quarter, but up from 4.4% a year earlier. The single-month rate for November reached 5.4%, a figure not seen for more than five years, according to the ONS data.
The labour market’s weakened state was reflected in the increase in the number of unemployed people over the last year, and economists said young people were among those most affected. Jake Finney, a senior economist at consultancy group PwC UK, said uncertainty over policy and hiring was taking effect.
“The labour market is weakening as elevated policy uncertainty and weaker hiring start to bite. As is often the case when the labour market slows, young people are at the sharp end of the rise in unemployment.”
City economists were forecasting at least two cuts in Bank of England interest rates in 2026 in response to the softer outlook for jobs and inflation. Finney said that while the latest employment figures were unlikely to decisively shape the next rate decision, a cut in March appeared more likely.
The ONS also reported that there were 155,000 working days lost to labour disputes, the highest number since January 2024, with more than half of those lost in health and social care due to strike action by resident doctors in England.
Policy uncertainty and economic pressures weigh on hiring
James Cockett, a senior labour market economist at the Chartered Institute of Personnel and Development (CIPD), the professional body for human resources and people development, said the figures pointed to employers facing sustained pressure despite a slight rise in vacancies.
“While vacancies have risen slightly, unemployment and redundancies remain stubbornly high, highlighting the pressures that employers are facing in a tough economic environment.”
He said the increase in temporary employment suggested organisations were avoiding longer-term hiring commitments amid uncertainty and concerns about rising costs. “This is also reflected in the rise in temporary employment, now at its highest level since mid-2023, suggesting that employers are holding back on long-term investment in their workforce in light of ongoing uncertainty and concerns about the increased costs that the Employment Rights Act will bring.”
Cockett said the government needed to keep consulting employers as further measures were developed through secondary legislation. “It’s crucial that the government continues to consult with employers to ensure that measures still to be finalised in secondary legislation don’t add further cost and complexity to recruitment and discourage permanent job creation.”
Government figures showed there were roughly 513,000 more people in work compared to the same time last year, a figure highlighted by the work and pensions secretary Pat McFadden, who said it underlined why further action was needed, particularly to support young people.
Analysts said ongoing uncertainty for employers, including changes in costs such as national insurance and the minimum wage introduced in the past year, had made firms more reluctant to retain staff or advertise new roles. Retail and hospitality businesses in particular had been vocal about the impact of rising business rates, while policymakers were reported to be considering support measures such as reductions in those rates for pubs.
Despite the weaker end-of-year reading on jobs and earnings, there were mixed signals in the data. While employment and hiring activity were slowing, the near six-year low in inactivity outside sickness hinted at potential resilience in the labour supply.
The ONS is in the process of improving its data quality after a recent review called for significant reforms to the organisation’s statistical systems, an effort officials said would strengthen future labour market analysis.
