UK jobs market flashes warning signs as payrolled employees drop nearly 100,000 in a year
The UK’s labour market is showing clear signs of strain, with the number of payrolled employees falling sharply over the past year even as the economy grapples with subdued growth and policy pressures.
According to the new data published by the Office for National Statistics (ONS) on Thursday (19 March), the number of payrolled employees in the UK dropped by 96,000 (0.3%) between January 2025 and January 2026.
On a comparable three-month basis (November 2025 to January 2026), the decline was even steeper at 109,000 (0.4%).
This marks a notable reversal from the post-pandemic recovery peaks, with HMRC’s Pay As You Earn Real Time Information (RTI) data, considered the most reliable timely measure of employee numbers, pointing to persistent weakness in hiring.
A provisional early estimate for February 2026 showed a smaller year-on-year drop of 49,000, with a modest month-on-month gain of 20,000, but these figures remain subject to revision.
The decline comes alongside a loosening labour market overall. The unemployment rate rose to 5.2% in the three months to January 2026 (covering November 2025 to January 2026), up from a year earlier, while the employment rate for those aged 16-64 stood at 75.1%, showing some resilience but with underlying fragility.
Economic inactivity edged lower to 20.7%, partly reflecting people moving into the labour force but struggling to find work.
Vacancies remained broadly flat in recent periods but saw a small decline of 6,000 (0.8%) to 721,000 in the latest early estimates, well below pre-pandemic highs. This has pushed the ratio of unemployed people per vacancy higher, signalling reduced demand for labour.
Wage growth has also moderated. Annual regular pay rose by 3.8% in the three months to January 2026, with total pay up 3.9%. In real terms, after adjusting for inflation, growth was a modest 0.4-0.7% depending on the measure.
Public sector pay growth remained stronger at 5.9% due to base effects from earlier awards, while private sector growth lagged at 3.3%.
Economists and forecasters have highlighted these trends as evidence of a cooling jobs market, driven by factors including higher employer National Insurance contributions, rises in the National Living Wage, and broader economic uncertainty.
The Office for Budget Responsibility (OBR) in its March 2026 outlook projected unemployment rising to a peak of around 5.3% in 2026, with weaker hiring rather than mass layoffs as the main driver. Growth in real GDP is expected to slow to 1.1% this year.
The ONS cautioned that Labour Force Survey (LFS) estimates remain “official statistics in development,” with improvements in response rates helping align them better with administrative data like RTI, but volatility persists. Users are advised to consider multiple sources for a full picture.
Business groups and recruitment bodies have echoed concerns, pointing to “extremely sluggish” conditions and hiring intentions at multi-year lows in some surveys. While some recruitment metrics show tentative stabilisation in permanent placements, the overall trend remains one of fragility.
