This month’s statistics indicate the labour market continues to weaken. Instead of moving towards Government’s goal of raising the employment rate to 80%, employment fell by 0.3 percentage points on the quarter to 74.9%.

The driving force behind this appears to be an increase in redundancies, which causes people to lose their jobs, coupled with a lack of new job opportunities due to a relatively low vacancies rate.

The reason for why this is happening is less straightforward than one might assume. On the one hand, the period covers the run up to the Autumn Budget, with fervent speculation potentially causing some degree of uncertainty and caution among businesses. There may also be some (delayed) effect of this year’s increased employer costs due to the higher National Insurance Contributions and the increase in the National Living Wage and National Minimum Wage. However, the Bank of England notes that drivers appear to be weaker global and consumer demand, limited investment plans, and pressure due to US tariffs.

Figure 1: The employment rate (%) among 16–64-year-olds continues to fall short of Government’s 80% target

Source: Work Foundation estimates using Office for National Statistics (16 December 2025) dataset A01: Table 1: Labour Force Survey Summary: People by economic activity for those aged 16 and over and those aged from 16 to 64 (seasonally adjusted).

Does rising unemployment point to wider economic troubles?

The picture of a troubled economy is compounded by a slow but steady rise in the unemployment rate, now at 5.1%. The last time unemployment reached this rate was between November 2020 and January 2021, but is not necessarily high in historical perspective.

However, more important than the overall rate is the fact that some workers are more affected than others – in this case particularly young workers. In August-October this year, more than half a million (546,000) 18–24-year-olds were unemployed, which is the highest number in a decade. This represents a rise of 85,000 on the quarter and is mainly fueled by a decrease in inactivity among this group.

Rising youth unemployment could be an indication that students are leaving full-time education and have started searching for work. The majority of young jobseekers have been unemployed for a short period of time but it is vital they find suitable work quickly. However, vacancies have dropped by 78,000 on the year and, concerningly, the number of young people who are long-term unemployed is slowly and steadily creeping up.

Figure 2: Youth unemployment has risen on the year, with a concerning increase in long-term unemployment for 18–24-year-olds

Source: Work Foundation estimates using Office for National Statistics (16 December 2025) dataset A01: Table 9: Unemployment by age and duration: People (seasonally adjusted)

Young people tend to be a bellwether of the economy and one of the first groups to be impacted by a weakening labour market. The latest figures should raise concern amongst policymakers.

Time for additional action?

The Government has recognised the employment challenges facing young people in particular. Today marks the launch of a major review into youth economic inactivity, led by former Health Secretary Alan Milburn, which is expected to examine the impact of mental health issues and disability. And from 2026, a new Youth Guarantee will ensure that any young person on Universal Credit for 18 months without earning or learning is offered paid work, including 55,000 government-backed jobs.

However, whilst important, these interventions are unlikely to encourage employers to recruit young people on a mass scale. As we enter 2026, it is vital that Government acts to prevent the rise in unemployment escalating further, including through accelerating reforms to JobCentres and employment support, taking extra steps incentivise firms to hire and boosting job creation and investment via the Modern Industrial Strategy.

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