UK Labour Market Faces 'Gloomy Outlook' as Unemployment Hits 5.1%

Unemployment Rises to Four-Year High

The United Kingdom's labour market is facing a challenging period, with the unemployment rate climbing to 5.1% in the three months to October 2025. This figure, released by the Office for National Statistics (ONS), marks the highest level since the three months to March 2021, and a four-year high when excluding the pandemic era. The increase reflects a weakening trend in the jobs market, with total unemployment rising by 158,000 from the previous quarter to 1.832 million.

Further data indicates a decline in employment, with total employment falling by 16,000 to 34.226 million, marking the second consecutive quarterly decrease, primarily due to a reduction in full-time positions. Estimates for payrolled employees in the UK also fell by 149,000 between October 2024 and October 2025, and by 22,000 on a monthly basis. A provisional estimate for November 2025 suggests a further decline of 38,000 payrolled employees.

Businesses Grapple with Soaring Employment Costs

The British Chambers of Commerce (BCC) has painted a 'gloomy picture' for UK jobs and opportunities, highlighting significant concerns among businesses regarding high employment costs. Jane Gratton, Deputy Director of Public Policy at the BCC, stated, 'There is little comfort in this data for businesses or the government. Employers are being squeezed by sky-high employment costs, and we are beginning to see the consequences.'

These rising costs, driven by factors such as high inflation and increased National Insurance Contributions (NICs), are directly impacting business decisions. Research indicates that:

• One in three UK businesses rolled back hiring plans in 2025 due to surging employment costs.
• Over half (52%) of UK employers are delaying pay rises to offset spiked costs.
• 72% of businesses surveyed by the BCC identified labour costs as their biggest cost pressure, with increased employer NICs being the main driver.
• A survey by Employment Hero revealed that 49% of businesses would consider raising prices if staffing expenses increase, 33% would delay hiring, and nearly 24% would consider redundancies.

Broader Economic Implications and Outlook

The weakening labour market is also reflected in other economic indicators. While annual growth in total pay (including bonuses) eased slightly to 4.7% in the three months to October, regular earnings (excluding bonuses) remained at 4.6%. Despite the slowdown, wage growth is still considered strong and above inflation, contributing to higher prices. Vacancies have remained broadly stable, with an estimated 729,000 in the three months to November 2025, though the BCC notes they are 'virtually static'.

Younger workers appear to be disproportionately affected, with an 85,000 increase in unemployed individuals aged 18-24 in the three months to October. The BCC's latest economic forecast suggests that the recent Budget is unlikely to significantly boost the UK economy, projecting subdued growth. GDP growth is expected to be 1.4% for 2025, slowing to 1.2% in 2026, with business investment also forecast to decline.

Conclusion

The combination of rising unemployment, persistent concerns over high employment costs, and a subdued economic outlook presents a challenging landscape for the UK. Official statements from the ONS and the BCC underscore the severity of the situation, with calls for measures to support businesses and stimulate growth amidst a 'weakening labour market'.