The latest labour market figures from the Office for National Statistics paint a restrained picture of the UK economy as 2026 begins. Unemployment held at 5.1 per cent for the three months to November 2025 — the highest level in four years — while payrolled employment fell by more than 90,000, marking the steepest quarterly drop since the pandemic. Wage growth slowed to 4.5 per cent, vacancies have stabilised below their pre-Covid peak, and most indicators suggest the jobs market has settled into an uneasy pause.
Behind those numbers is a quieter story of employers treading carefully. Hiring activity has cooled, smaller businesses are showing less appetite to expand their headcount, and younger workers are finding it harder to gain a foothold. The picture is steady on the surface, but the momentum that once characterised the post-pandemic rebound has clearly ebbed.
Kevin Fitzgerald, UK Managing Director at Employment Hero, said the latest ONS release confirms that pattern. “Creating an environment that actively supports hiring will be crucial to unlocking the full potential of the labour market and driving better outcomes for both employers and workers,” he said. “However, today’s ONS employment data is the latest demonstration of how growth in the UK labour market continues to stall.”
He noted a modest rise in vacancies as one of the few encouraging signs but cautioned that rising costs and new employment regulations were weighing heavily on sentiment. “Despite the employment rate remaining flat, a further uptick in vacancy numbers, following a small increase last month, is positive. Market confidence relies on sustained growth, and this is good news for jobseekers looking to land new opportunities in a competitive market. However, rising costs combined with the Employment Rights Bill becoming law last month have placed significant pressure on employers, many of whom have opted to play it safe when it comes to hiring, limiting employment growth.”
Employment Hero’s own data echo the official picture. Its proprietary index shows employment growth among UK small businesses falling from 7.8 per cent in December 2024 to just 2.5 per cent a year later. For Fitzgerald, that deceleration captures a wider loss of confidence. “Small businesses are the backbone of the economy, and it is clear that more must be done to win back their confidence,” he said.
Naomi Clayton, Chief Executive at the Institute for Employment Studies, described a labour market that is “continuing to weaken.” “Payrolled employment has fallen by over 90,000 in the last quarter – the largest fall outside the pandemic. Vacancies appear to have stabilised but remain well below the pre-pandemic peak. Unemployment remains at the highest rate in four years at 5.1 per cent and there are still 2.1 million people who are outside the labour force who want to work.”
She warned that the shift is hitting younger workers hardest. “Increases in unemployment have been largely driven by young people who have been affected by the slowdown in hiring, and the youth unemployment rate is the highest it’s been in 10 years, including the pandemic. The government needs to work with employers to create more job and training opportunities for young people, encourage hiring and to increase support so they can access those opportunities.”
As hiring hesitancy deepens, business owners point to rising costs as the main drag on expansion. Andreas Adamides, Chief Executive of Helm – The Supper Club, said that economic potential will only translate into job creation if companies are given fiscal room to manoeuvre. “Jobs only take root when businesses are given the space to grow. If the government is serious about backing workers, it must stop weighing down the companies that employ them. From National Insurance hikes to rising business rates, mounting costs are squeezing firms and stalling job creation.”
Adamides noted that the UK economy’s 0.3 per cent growth in November 2025 shows underlying capacity is still there. “The economy’s 0.3 per cent growth in November proves the potential is there. With a business-first approach and the right support, companies can flourish and deliver the jobs people rely on.”
Together, the figures and commentary depict a market in balance but not in motion. Unemployment is contained, yet opportunities are not expanding; wage pressures have eased, yet confidence has not returned. Unless costs moderate and targeted incentives reignite hiring among smaller employers, the UK risks entering 2026 with a labour market defined less by crisis than by caution. The next ONS update, due in February, will indicate whether this plateau marks the start of recovery or the onset of a longer slowdown.
