Today’s ONS data suggests the UK labour market continues to face significant challenges and is likely to be buffeted by domestic political uncertainty and international economic upheaval during the remainder of 2026. Unemployment remains high at 5.0%, vacancies have fallen again to 705,000 and wage growth continue to slow leaving workers exposed to further cost of living pressures.

Young people bearing brunt of sluggish labour market

The Government’s ambition to Get Britain Working appears to be in increasing jeopardy, as jobseekers continue to struggle to find work. Unemployment is at 5% with 326,000 more people out of work than when Labour took office in 2024. Meanwhile, vacancies have fallen again to an 11 year low of 705,000 which is intensifying the competition for jobs. There are now 2.5 unemployed people per vacancy which highlights how competitive the job market is. Employer are holding back on hiring decisions due to the uncertain political environment. Vacancies fell across most sectors of the economy which reflects the lack of business confidence.

Young people have borne the brunt of this slowdown. Youth unemployment has hit a near 12 year high of 14.7%, with more than one in five of those out of work (22.7%) having been unemployed for more than 12 months.

This is concerning, as longer periods out of work have long-term scarring effects not only for young people’s long-term earnings potential but also for their ability to build long-term savings. New research by the Pensions Committee finds that 15 million people are not currently saving adequately for their retirement, with nearly half (45%) of working-age adults not saving into a pension at all.

In addition, there are 1.3 million young people not in employment of full-time education. It is therefore vital that the Government’s Youth Guarantee scheme provides a pathway for young people into secure, high-quality work, while the Milburn Review on rising youth unemployment and inactivity engages with the complex barriers young people face today.

Weakening pay growth will leave workers grappling with ongoing cost of living pressure

Those in work are also feeling the pressure of a weak labour market as pay growth continues to slow. Nominal pay growth has fallen to 3.4%, affecting both the private and public sectors. Private sector wage growth has weakened to 3% which is the lowest rate of growth since October 2020 while public sector growth has tapered off to 4.8% as the effect of the pay awards wear off.

Worryingly, real pay growth has ground to a halt. Average weekly real wages are at the same level they were this time last year. This lack of wage growth leaves workers exposed to the likely intensification of cost-of-living pressures over the coming months. Recent ONS public opinion research has found that workers are pessimistic about their ability to withstand further economic shocks. Less than a quarter of adults (23%) say that they would be able to afford an unexpected, but necessary expense of £850. This data provides an indication of how precarious household finances are and reinforces the importance of Government steadying the ship.

Figure 1: Regular nominal wage growth - March 2025-March 2026

Source: ONS dataset A01 Table 15: Average Weekly Earnings (nominal) - Regular Pay (Great Britain, seasonally adjusted)

Domestic political uncertainty jeopardising Government’s growth and Make Work Pay agendas

Today’s data has been released against a backdrop of military strife overseas and political turbulence at home – both of which could undermine the Government’s ability to address the challenges facing the UK labour market in 2026.

Those out of work and those at risk of leaving the labour market can ill afford an extended period of political stalemate at Westminster, or the further draining of confidence in the UK economy. It is absolutely vital therefore that Ministers offer stability to employers and re-focus on commitments to grow the economy, boost living standards and strengthen pathways to well paid, secure employment.

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