Today’s labour market figures indicate that the labour market remains resilient in the face of global economic uncertainty. Headline figures remain broadly stable with the unemployment rate ticking downwards and regular nominal pay growth increasing on the quarter. Despite the apparent stability, structural challenges remain and the Government must focus on supporting business to create jobs if it is to realise its ambition of “good growth in every postcode”.

Unemployment falls but jobs crisis far from over

This month’s labour market figures saw a surprising fall in the unemployment rate to 4.7%, down by 0.2 percentage points on the quarter. This welcome news is off the back of unexpectedly strong economic growth figures released last week which may indicate that the economy is turning a corner despite global macroeconomic shocks.

While the unexpected fall in unemployment is welcome, the Government cannot afford to be complacent as structural weaknesses in the labour market persist. Vacancies fell again to 691,000 which is the lowest level since 2014 outside the pandemic. The fall in vacancies is concentrated in small firms which suggests that the increased cost of energy and hiring continues to bite.

Government needs to raise its ambitions on tackling the youth jobs crisis

The Government will undoubtedly be encouraged by the drop in youth unemployment (16-24) in this month’s figures which is down by 28,000 on the quarter. However, there are still 715,000 young people out of work which is an increase of 54,000 on the year. Work Foundation research has found that starter jobs- roles accessible to someone entering the workforce for the first time- have halved over the past decade. There were approximately 139,000 starter vacancies in 2016-2017 compared with just 71,000 in 2025-2026. Young people are finding it increasingly difficult to get a foothold in the labour market, which in turn affects their future earnings prospects.

In response to the youth jobs crisis, the Government has announced a Youth Guarantee scheme that will subsidise businesses to hire young people for a period of six months. While this initiative is welcome, it risks failing to meet the scale of the challenge. The Work Foundation has called for the creation of a devolved Community Jobs Fund where Government provides direct funding to Mayors and local leaders in places with weak labour markets to enable them to create sustainable and socially useful work for young people. This fund would align with the Government’s goals of devolving power and tackling the youth jobs crisis.

Wage pressures mount for the most vulnerable

For those in work, the more pressing concern is the long-term stagnation in real earnings. Private sector real wages have been in decline for the last eleven months, and have left the average worker £6.50 poorer each month than at the start of the year. While overall wage growth continues to make some marginal gains, expanding 0.6% in real terms over the last year, much of this continues to depend on public sector pay increases that are trying to reverse the wage erosion experienced by teachers and healthcare workers over the last decade.

Worryingly, some of the dynamics underpinning wage stagnation appear to be changing. Until this month, high-wage sectors like finance and business services had experienced the longest prolonged period of declining wages. But that ended in August with minor growth of 0.1%, as lower-paid sectors like construction (down 2.2%) and retail & hospitality (down 0.3%) bore the brunt of wage pressures. The slowdown in pay for vulnerable workers in retail & hospitality ends a long streak of progress anchored by increases to the National Living Wage and may reignite debates on how to protect the lowest paid workers from continued cost-of-living pressures.

Government must be proactive as storm clouds gather

These pressures are expected to come to the fore in the coming months, as the country enters winter with energy prices that are estimated to cost the average household an extra £276 a year. With Work Foundation survey data indicating that only 22% of employers are planning to offer above inflation wage increases this year, workers will be looking to the Budget Speech to assess whether the Government is prepared to support them through a long winter of inflation.

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