The UK labour market ‘is showing definitive signs of strain’

The UK unemployment rate for people aged 16 years and over was estimated at 4.4% in November 2024 to January 2025, according to official data published this morning.

This is above estimates of a year ago, and up in the latest quarter. Meanwhile, the estimated number of vacancies in the UK in December 2024 to February 2025 was 816,000, broadly unchanged on the quarter.

Payrolled employees fell by 9,000 (0.0%) over the quarter but rose by 72,000 (0.2%) over the year, when looking at November 2024 to January 2025.

The early estimate of payrolled employees for February 2025 increased by 21,000 (0.1%) on the month and increased by 66,000 (0.2%) on the year to 30.4 million.

Annual growth in employees’ average regular earnings excluding bonuses in Great Britain was 5.9% in November 2024 to January 2025, and annual growth in total earnings including bonuses was 5.8%. Annual growth in real terms was 2.2% for regular pay and 2.1% for total pay. Newspage asked recruiters and economists for their views, below.

Gabriel McKeown, Head of Macroeconomics at Sad Rabbit said, “The UK labour market is showing definitive signs of strain, with the 31st consecutive period of declining vacancies signalling a persistent cooling in employer hiring appetite. While total vacancies remain above pre-pandemic levels, the pace of decline is clear, pointing to broader challenges in employment growth.

“Business confidence remains fragile, with firms continuing to navigate inflationary pressures, high borrowing costs, and macroeconomic uncertainty. UK equity markets may begin to experience headwinds with the poor job market hitting confidence, however gilt yields are likely to edge lower due to cooling employment landscape, reflecting eased inflationary concerns.

“Policymakers at the Bank of England are now caught in a precarious balancing act, compelled to tame wage-induced inflation pressures without further undermining the fragile jobs market.”

Harry Mills, Director at Oku Markets said, “The UK’s unemployment rate was, unsurprisingly, steady at 4.4% in January, marking the third straight month at this level. According to the ONS, short-term unemployment rose while long-term unemployment fell.

“This sounds like a robust number, reflecting a resilient and high-performing economy, but are things all as they seem? Of course not. Have you seen our welfare bill? The thing with the unemployment number is that it only captures those individuals actively seeking work, making it nearly pointless.

“The UK’s employment rate, that is, the proportion of people aged 16 to 64 in work, was 72.2%, whilst the economic inactivity rate (the share of people aged 16 to 64 who were neither working nor job-seeking) was 26.6%. That’s more like it. As good as a quarter of working-age people aren’t working – that’s the number we should focus on, and that’s why the Chancellor has little headroom in her Budget.”

David Morel, CEO at Tiger Recruitment added, “The jobs market is far more resilient than expected at present. Hiring in the Business Support sector nationally has risen by 25% so far in the first quarter of the year compared to the same time period last year.

“This is despite the National Insurance increases coming down the track, which have now been priced in by businesses. Why? Businesses are finding innovative ways to make things work, such as focusing on greater efficiency and retaining staff through soft benefits rather than salary increases. One trend we are seeing is an increase in hiring demand from businesses located outside of London as well.”

Kate Underwood, Managing Director / HR Director at Kate Underwood HR and Training said, “Right now, businesses are either snapping up talent or sitting on their hands, waiting to see what the NIC changes bring. The jobs market is a mix of cautious optimism and budget-balancing gymnastics.

“We’re seeing more companies focus on keeping their best people rather than going all-out on hiring sprees. Upskilling, flexible roles, and ‘make every hire count’ seem to be the mood of 2025. It’s not a total freeze but the jobs market isn’t exactly sizzling. In the HR trenches, that’s the vibe.”

David Belle, Founder and Trader at Fink Money added, “We lean once again into the ONS possibly not having very good data. ‘UK UNEMPLOYMENT CHANGE ACTUAL 44.2K (FORECAST 7.9K, PREVIOUS 22.0K)’ Although the % remains constant, there is quite clearly a deterioration in actual vs previous and expected.

“This feels odd to me and I have a sense there is some sort of shuffling of people who have taken themselves completely out of work, which is distorting the statistics a bit.”