The latest Labour Market Overview from the Office for National Statistics (ONS) paints a mixed picture for the UK labour market.
Vacancies have dropped to 812,000, a decrease of 118,000 compared to the same period last year (October–December 2023). This marks the 30th consecutive period of falling vacancies, bringing figures just above pre-pandemic levels.
Regular pay growth has reached 5.6 percent annually, with the UK now in its 18th consecutive month of real pay growth – the longest stretch since 2019. However, concerns remain about the sustainability of these gains as they appear driven more by inflation catch-up than by productivity improvements.
The employment rate stands at 74.8 percent, a slight decline from the previous quarter but stable compared to last year. Unemployment has risen to 4.4 percent, up on both the quarter and the year. Meanwhile, economic inactivity due to long-term sickness has increased to 2.81 million.
Pay growth has been concentrated in the private sector, where wages rose by 6 percent in industries such as finance, manufacturing, and retail. Public sector pay, by contrast, grew by 4.1 percent.
Labour Market Struggles with Economic Pressures
Rebecca Florisson, Principal Analyst at the Work Foundation, described the figures as a “mixed picture”. She noted that while pay increases may dominate headlines, other indicators “remain sluggish”.
“Regular pay is up 5.6% on the year, driven by private sector pay growth. While real wage growth of 2.5% on the year is good news for workers these gains appear to be being driven by pay catching up with price rises, not by increased productivity or economic growth,” she said.
Florisson also raised concerns about potential job losses as businesses face rising National Insurance contributions and minimum wage increases in April 2025.
“Vacancies continue to fall, indicating a cooling jobs market,” Florisson said, adding that meeting the government’s target of an 80 percent employment rate amid a stagnating economy will be a challenged.
“De-risking the route back into work for the near-record 2.81 million economically inactive due to long-term sickness could be key to achieving a higher employment rate – which requires employment support, but also notably, better access to good quality, flexible jobs for people to enter into,” she added.
Jack Kennedy, Senior Economist at Indeed, echoed these sentiments, citing “sticky wage growth” as a key concern for the Bank of England. He noted that businesses are bracing for higher labour costs in April, which could lead to price increases or cost-cutting measures. Kennedy added that despite these challenges, remote and hybrid working remain prevalent.
“Offering location flexibility remains a powerful attraction tool for those employers who are still looking to hire. At a time when competitors may be pushing in the other direction, offering flexibility spells an opportunity to secure top talent,” he said.
Skills Gaps and Recruitment Challenges Persist
Michael Stull, Director at ManpowerGroup UK, raised concerns over the sustained decline in vacancies, which are now close to pre-pandemic levels. He noted that employer National Insurance increases and threshold changes, set to take effect in April, could exacerbate the hiring recession.
Stull pointed to ManpowerGroup’s 2025 Global Talent Shortage Survey, which suggests the UK’s skills gap may have peaked, but remains higher than the global average.
“While the reduction is undoubtedly welcome, most organisations will need to keep working extra hard to continue closing the skills gap,” he said.
The Recruitment and Employment Confederation’s (REC) Chief Executive, Neil Carberry, noted the weakening performance in the labour market leading up to Christmas – but suggested that January and February will be critical months for determining whether hiring activity rebounds.
“The underlying issues we have seen in the labour market over the past few years are still clearly visible in today’s release – an employment rate below pre-pandemic norms, and higher economic inactivity,” he said. “But these challenges risk being added to by shorter-term cost concerns, resulting in today’s rise in unemployment. At the highest level, this is not a weak jobs market, with unemployment still low by historic standards and vacancies high, but the trend is concerning.”
Carberry called for greater government clarity on growth plans, warning that cost pressures could hinder progress toward employment targets.
Flexible Work Key to Retaining Talent
Natalie Matalon, Chief People Officer at Totaljobs, spoke of the importance of flexibility in addressing labour market challenges. She noted that while wage growth is improving, many workers are dissatisfied, with salary satisfaction falling to 63 percent. Flexible working hours remain a top priority for candidates.
“Companies that offer additional clear flexibility will have a competitive advantage in attracting talent, especially among those currently inactive in the labour market,” Matalon said.
Catherine Foot, Director of Phoenix Insights, focused on economic inactivity among over-50s, stating that barriers to work for this group must be addressed to support economic growth.
“The decline in vacancies makes it even more important to ensure roles that are available are flexible,” she said. “Government and businesses must work together to break down employment barriers – through more inclusive recruitment, paid carers’ leave, and tailored career guidance to help people retrain and stay in work for longer.
“The government’s Employment Rights Bill and Get Britain Working White Paper recommendations are positive steps, but further targeted action is needed to create a labour market that works for all ages.”
The Youth Unemployment Crisis
Dr Andrea Barry, Principal Economist, Youth Futures Foundation, pointed to the ongoing youth unemployment crisis. ONS data shows that the unemployment rate for young people not in full-time education is up from 11% to 12.7% in the last year. Inactivity has also gone up from 19.4% to 20.9%.
“Falling into unemployment has been shown to leave deep, long-term scars for young people, not just in terms of job opportunities and income, but mental health too,” Dr Barry said. “There is also a huge economic case. If the Government is to deliver on its pledge to achieve an 80% employment rate, as laid out in the Get Britain Working white paper, tackling the youth unemployment challenge must be a priority.
“By reducing our NEET rate to that of the Netherlands, approximately 500,000 more young people across the UK would be in work or education – a £69bn boost to the UK’s economy.”
Alessandra Pacelli is a journalist and author contributing to HRreview, where she covers topics including labour market trends, employment costs, and workplace issues.
- Alessandra Pacelli
- Alessandra Pacelli
- Alessandra Pacelli
- Alessandra Pacelli
