Business

UK unemployment has hit 5% – but there is a silver lining

Ryan Brothwell 11 November 2025 2 min read

The latest ONS data shows that UK unemployment has now hit 5% – the worst since the height of the Covid pandemic. But there are still some bright spots, says Jake Finney, Senior Economist at PwC UK.

Notably, after years of softening, the labour market appears to be finding its footing. Payrolled employment is still edging lower, but vacancies have started to flatten off, suggesting conditions are beginning to stabilise. Challenges remain in labour-intensive sectors such as retail, hospitality, and manufacturing, where employment is still falling at a pace.

“One bright spot is that youth inactivity has declined for the second month in a row. However, the fact that this has translated into roughly equal increases in youth employment and unemployment suggests that many young people are struggling to find work in a labour market that has cooled,” said Finney.

“With most indicators now moving in the right direction, a December rate cut is no longer off the table. Pay growth is edging down, adding to signs that domestic price pressures are easing after the recent fall in services inflation. However, recent comments from the Bank of England suggest they remain cautious, meaning a move early in the new year could still be the most likely outcome.”

This was echoed by Matt Swannell, Chief Economic Advisor to the EY ITEM Club

“Alongside cooling pay growth, labour market conditions are gradually loosening. The Labour Force Survey (LFS) data continues to carry relatively little weight due to ongoing problems with low response rates. HMRC’s count of payrolled employees also has issues, particularly the tendency for initial estimates to be revised up.

“But falls in both September and October indicate renewed weakness, after headcount had stabilised in the summer, and although previously strong job creation in the public sector had offset job losses in the private sector, that support now appears to be fading.”