November 25, 2025 at 16:04
UK Labour Market Overview: Insights from the ONS November 2025 Release
Authored by MyEyze Finance Desk
The UK labour market shows signs of softening in the July–September 2025 period, with the employment rate dipping to 75.0% and unemployment rising to 5.0%, according to the Office for National Statistics (ONS). Pay growth remains moderate at 4.6% year-on-year, translating to just 0.5% real terms amid cooling inflation. Vacancies held steady at 723,000, but overall participation trends and regional disparities highlight emerging slack. This points to a loosening market that could support Bank of England rate cuts, amid broader economic stagnation.
Key Points
- Unemployment rises to 5.0% (up 0.3 pp QoQ, up YoY), signaling increased slack in the labour market as job seekers outpace openings.
- Employment rate at 75.0% (down 0.2 pp QoQ, up YoY), with inactivity steady at 21.0%, driven largely by long-term sickness affecting around 30% of inactive individuals.
- Vacancies flat at 723,000 (unchanged QoQ, down YoY), indicating a Beveridge curve shift and genuine softening rather than temporary mismatches.
- Regular pay growth at 4.6% YoY (real terms +0.5% CPIH-adjusted), slowing from prior periods and below expectations, with private sector leading but public sector settlements pending.
- Forward guidance: More labour market slack likely ahead, with youth unemployment at ~12% and regional highs in the North East (~6.5%).
- Implications:Supports BoE's December 2025 rate cut to 3.75% (~70% probability), easing inflationary pressures from wages.
Headline Labour Market Indicators (July–September 2025 unless noted)
| Indicator | Latest Figure | QoQ Change | YoY Change |
|---|---|---|---|
| Employment rate (16–64) | 75.0% | -0.2 pp | +0.2 pp |
| Unemployment rate (16+) | 5.0% | +0.3 pp | +0.2 pp |
| Economic inactivity rate (16–64) | 21.0% | Unchanged | -0.1 pp |
| Vacancies (Aug–Oct) | 723,000 | Unchanged | -14% |
| Regular pay growth (Jul–Sep) | 4.6% YoY | N/A | N/A |
| Total pay growth (Jul–Sep) | 5.1% YoY | N/A | N/A |
| Real pay growth (CPIH-adjusted) | +0.5% YoY | N/A | N/A |
Why the employment rate keeps drifting down
The employment rate for those aged 16–64 has edged down to **75.0%** in July–September 2025, a 0.2 percentage point decline from the previous quarter, though it remains slightly higher year-on-year. This drift reflects persistent challenges in boosting participation, with the economic inactivity rate holding steady at **21.0%**. Long-term sickness continues to be a major drag, accounting for approximately 30% of inactive individuals. Recent improvements in the Labour Force Survey (LFS) methodology have refined these estimates, but the underlying trend suggests structural barriers, such as health issues and skills mismatches, are preventing a fuller recovery in workforce engagement. Businesses report subdued hiring intentions amid weak demand, and without a pickup in consumer spending, participation rates may hover below pre-pandemic peaks. For investors, this suggests muted productivity gains ahead, as firms rely on existing staff rather than expanding headcount.
Beveridge curve shifting out = genuine softening
Unemployment climbed to 5.0% for the 16+ population, up 0.3 percentage points quarter-on-quarter and the sharpest rise in over a year. Meanwhile, vacancies stayed flat at 723,000 in August–October, down 12.5% year-on-year. This mismatch—rising joblessness alongside stable openings—points to a classic Beveridge curve shift: more unemployment for each vacancy level, a sign of genuine market softening rather than temporary mismatches.
In simple terms, it's like a cooling engine: demand for workers isn't surging, so more people are sidelined without new roles materializing. Payrolled employees also dipped 0.1% month-on-month in September and 0.4% year-on-year, confirming the slowdown. Business leaders should note this as a cue to focus on retention over expansion, while policymakers eye it as evidence of emerging slack that could help tame inflation without a recession.
Nominal vs. real, private vs. public, settlements outlook
Key Points
- Regions: Unemployment varies sharply, with the North East at ~6.5% (highest, up from 6.2% QoQ) due to manufacturing weakness, while the South East holds at ~4.2% (lowest), buoyed by services and tech hubs. London and the East of England show resilience but widening disparities.
- Age groups: Youth (16–24) unemployment stands at ~12%, far above the national average, while prime-age (25–49) workers face moderate pressures; those aged 50+ see stable but lower participation due to early retirement trends.
- Inactivity drivers: Long-term sickness accounts for ~30% of the 21.0% inactivity rate, particularly affecting working-age women and those in deprived areas; policy interventions like health support could unlock potential.
Direct link to Bank of England
The Bank of England's Monetary Policy Committee (MPC) will view these figures as evidence of an emerging output gap, with labour market slack reducing inflationary risks from the supply side. Unemployment at 5.0% and flat vacancies suggest the economy is operating below potential, aligning with the BoE's dual mandate. Wage growth's slowdown—faster than projected in the August and November 2025 reports—updates the wage Phillips curve, implying less upward pressure on services inflation. Market probabilities now price in a ~70% chance of a December 2025 cut to 3.75%, rising to 90% for February 2026, as policymakers balance growth support with price stability.
Recent UK Economic Indicators (as of 23 November 2025)
| Indicator | Latest | Assessment |
|---|---|---|
| GDP (Q3 QoQ) | +0.1% | Amber (modest growth, but below trend) |
| CPI (Oct YoY) | 3.6% | Green (cooling from 3.8%) |
| PMI Composite (Nov flash) | 50.5 | Red (contraction territory, down from 52.2) |
| PMI Services (Nov flash) | 50.5 | Red (stagnation in key sector) |
| Retail sales (Oct YoY) | +1.6% | Amber (modest rebound) |
| Consumer confidence (Nov) | -44 | Red (sharp drop from -35) |
| Business investment intentions (BoE Nov) | Limited | Red (cautious outlook) |
| Fiscal position (post-Autumn Budget 2025) | Tight (£20–40bn hole, tax rises) | Red (constrained spending) |
Dashboard and Conclusion
Key Points
- **January pay settlements:** Key private sector awards could reignite wage pressures if above 3.5%, influencing BoE's Q1 2026 decisions.
- **Public-sector pay awards:** Pending rises may widen the nominal pay gap, adding to fiscal strains amid the Budget's tax hikes.
- **Spring 2026 national living wage increase:** Expected uplift could boost low-end earnings but risk youth unemployment if not matched by demand.
- **Reversal in long-term sickness trends:** Health policy changes or economic rebound might reduce inactivity, tightening the market unexpectedly.
Disclaimer
This content was created with formatting and assistance from AI-powered generative tools. While we strive for accuracy, this content may contain errors or omissions and should be independently verified.The final editorial review and oversight were conducted by humans.