This month’s labour market data paints a worrying picture of a jobs market losing momentum – with rising unemployment and more people struggling to re-enter work, the Government faces growing pressure to act ahead of the Autumn Budget.

People spend longer looking for work

This month’s statistics indicate the labour market is weakening, with unemployment rising to 5.0% in July-September 2025. This means there are now 1.79 million people out of work and looking for a job. Of particular concern is that this number appears to be rising not due to increasing inflow (economic inactivity is stable at 21%), but rather due to limited outflow caused by difficulties in finding work.

As a result, the duration of unemployment is going up. There were an additional 73,000 jobseekers who were searching for work for over 12 months this quarter compared to the previous quarter. Long-term unemployed jobseekers now compose 25.5% of all jobseekers, which is the highest rate since the middle of the Covid-19 pandemic in July-September 2022. The challenge for jobseekers is exacerbated by the highly competitive landscape – vacancies came down from record highs in the wake of the pandemic and are now are seemingly stable at around 723,000 – meaning there are 2.5 job seekers for every open vacancy.

Figure 1: Unemployment highest since the pandemic (Dec-Feb 2021)

Source: Work Foundation estimates using ONS (11 November 2025) dataset A01 Table 1: Labour Force Survey Summary: People by economic activity for those aged 16 and over.

The drivers for this labour market slow down are complex. Hiring may have been impacted to some extent by last year’s increase in employer National Insurance Contribution and the rise in the National Living Wage and National Minimum Wage, which has increased costs for employers particularly in lower paying industries. Add to this anaemic economic growth, and it is likely the Chancellor will be facing pressure in the run-up to November’s Budget to take action to incentivise hiring.

Focus should be on getting people into good quality, sustainable work

Ultimately, however, it is important Government focusses on ensuring employers create good quality, sustainable jobs. These can act both as a pull-factor for people outside of the labour market, as well as giving employers a better opportunity to retain workers who have seen a downturn in their health, which remains a persistent driver of labour market exits.

A key marker of good, sustainable work is job security – but despite the Employment Rights Bill being expected to gain Royal Assent over the next few months, there are indications that the appetite for insecure contracts has not diminished. Temporary jobs increased by 45,000 on the quarter, and nearly 100,000 on the year. Similarly, the number of zero-hour contracts increased to 1.2 million. This appears largely driven by contracts in lower paid sectors, where insecure work tends to be concentrated, with particular rises in caring, leisure and services and sales and customer services. Part of this might be attributed to seasonality, but it may also to some extent be related to the increasing costs for employers. Notably, women and young workers aged 16-24 compose the biggest part of this rise. The number of zero hour contracts increased by 31,000 among young workers, which means 508,000 young workers are now on these contracts.

Figure 2: Number of people on zero-hour contracts at its second highest level

Source: Work Foundation estimates using ONS (11 November 2025) dataset EMP17: Table 1: Level and rate of people aged 16+ on zero-hours contracts.

The Chancellor’s challenge

The Government faces a political and fiscal balancing act at the Autumn Budget. However, rising unemployment, persistent economic inactivity, stagnant job vacancies and weak real wage growth all highlight the urgent need for the Chancellor to allocate sufficient funding to deliver lasting improvements in the labour market.

This requires rejecting short-term welfare cuts that merely drive people into insecure, low-quality work, and instead focus on sustained, personalised employment support. It also means investing in the reforms outlined in Sir Charlie Mayfield’s Keep Britain Working Review to help retain more people in the workforce over the long term.

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