UK jobs market continues to soften as unemployment rises and real wages flatline 16 December 2025 The UK labour market is ending the year with a whimper, with unemployment hitting 5.1 per cent and real pay packets levelling off, the Resolution Foundation said today (Tuesday). The number of payrolled jobs fell again in October and November (by 22,000 and 38,000) and has now fallen by 171,000 over the past 12 months. As a result, the Foundation’s employment rate estimate has fallen to 75.3 per cent – down from its peak of 76.6 per cent in mid-2023. Britain’s recent employment downturn is accounted for by rising unemployment – not economic inactivity as many assume (and which is marginally below pre-pandemic levels). Unemployment hit 5.1 per cent – its highest level outside of the pandemic (when levels were affected by furlough) since early 2016 – and is forecast to remain elevated throughout 2026. This softening of the labour market means that pay growth is also weakening. Over the past 12 months, average weekly earnings (excluding bonuses) have risen by just £3.80 in real terms – barely enough to cover the cost of a cup of coffee. Looking at short-term (annualised three-month) changes in the private sector between May-July and August-October 2025, nominal wage growth has fallen to 2.7 per cent. This is a rate that the MPC will see as broadly consistent with on-target inflation. Hannah Slaughter, Senior Economist at the Resolution Foundation, said: “The labour market is ending the year with a whimper, with falling job numbers and weakening wage growth. “This means that Britain is likely to usher in 2026 with rising unemployment and the risk that pay packets could start shrinking again. Policy makers need to react to these trends. “For the Bank, the latest data shows that there may be more space to cut interest rates beyond Thursday’s expected cut. The Government too should be razor focused on Britain’s burgeoning unemployment challenge and redouble efforts to support job creation.”
