As the March labour market data made the headlines last month, the Government and the opposition hit the airwaves to give their take on the state of the labour market. The Shadow Chancellor, Mel Stride MP, pointed out that unemployment had risen again to 5.2%. On the other hand, the Work and Pensions Secretary Pat McFadden MP insisted that there are "388,000 more people in work than there was this time last year".

So, can both be true? In this explainer article, we look at what is going under the bonnet in the labour market.

What is driving the rise in unemployment?

Unemployment has risen to 5.2% from 4.3% at the time of the General Election in July 2024 – and there are now 343,000 more people unemployed. The Conservative Party has attacked the Labour Government for damaging business confidence and making it more expensive to hire by hiking employer National Insurance contributions and the National Minimum Wage.

While this sharp increase is concerning and points to falling labour demand, it has not entirely been driven by people losing their jobs but also by people moving out of economic inactivity. Economic inactivity rose sharply since the pandemic to a high of 9.49 million in Feb-Apr 2024 but has now dropped just below nine million for the first time in five years.

Figure 1: Change in employment, unemployment and economic inactivity rates (Feb-Apr 2024 to Nov-Jan 2026)

Source: ONS Dataset A01 Table 1: Labour Force Survey Summary: (March 19th 2026)

This is good news for the Government’s goal of achieving its goal of increase the employment rate to 80% as more people are actively looking for work. As Figure 2 indicates, the composition of the 1.87 million people who are unemployed is increasingly made up of those moving out of inactivity into unemployment as opposed to employed people losing their jobs.

Figure 2: Flows to unemployment from employment and economic inactivity

Source: Office of National Statistics Dataset X02: Labour Force Survey flows estimates; February 17, 2026

Why is employment not falling at the same time?

Falling inactivity has also meant that the number of people in employment has increased. The rise in inactivity due to long-term ill health during the pandemic has been offset by falls inactivity due to other reasons. As a result, there are 583,000 more people in the labour market (consisting of both employment and those actively looking for work) relative to last year, some of whom have moved straight from inactivity into employment. However, as the labour market continues to struggle, the employment rate might start to dip as more people may fall out of employment and fewer people moving out of inactivity find work.

Jobseekers are struggling to find work as the labour market weakens

While falling economic inactivity is encouraging news, people are entering into a cooling labour market and early signs suggest many are struggling to find work. Vacancies have fallen from their post-pandemic peak of 1.3 million in March 2022 to 721,000. There are now three unemployed people to every vacancy which is the highest level in five years. This increase in the supply of labour when businesses say rising hiring costs are slowing labour demand is likely to put further downward pressure on wage growth.

Figure 3 illustrates the challenges people moving out of inactivity are facing. The likelihood of moving from inactivity to unemployment is the highest on record. People are now as likely to move from inactivity to unemployment as opposed to directly into employment. Moving forward, as people struggle to find work, we might either see an uptick in long-term unemployment or a rebound in inactivity levels as people become discouraged at the prospects of finding work and falling back into economic inactivity.

Figure 3: Hazard rates of moving from economic inactivity to employment and unemployment*

Source: Office of National Statistics Dataset X02: Labour Force Survey flows estimates; February 17 2026

Fall in inactivity will be short lived without economic growth

Conflicting statements about the underlying state of the labour market are unlikely to stop as people leave economic inactivity which is likely to increase unemployment and employment rates at the same time. The fall in economic inactivity will be a relief for the Government as they aim to increase the employment rate to 80%. However, more people are finding it difficult to move straight from inactivity from employment as the labour market continues to weaken. Without an uptick in economic growth and business confidence, jobseekers will continue to struggle to find work. To ensure a sustainable fall in inactivity, the Government needs to create the conditions for economic growth to encourage business to hire and invest so that there are enough high-quality secure jobs available for people beginning to search for work again.

* Hazard rates equal the gross flow from the second quarters as a percentage of the total stock from the previous status in the first quarter.

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