Today’s figures indicate that the labour market continues to cool gradually with young people finding it harder to find work. This raises the stakes for the Chancellor in the upcoming Budget as she aims to stimulate economic growth to create good jobs and raise living standards across the country.

Unemployment rises again

Unemployment rose slightly to a four-year high of 4.8%. There are now 297,000 more people in unemployment relative to last year. Youth unemployment is a particular concern. Nearly one in four (23.3%) young people in unemployment have been out of work for more than twelve months which is an increase of five percentage points on the year. It is not unusual for young people to spend some time out of work as they enter the labour market and look for jobs that match their skills. However, longer periods of unemployment do lead to scarring effects that can negatively affect future career and earnings prospects.

Young people have faced several health and employment challenges over the last few years. Businesses point to the rising costs of hiring young workers as the reason for the decline in entry-level jobs while other commentators have suggested that AI has reduced the availability of these roles.

The Government has recently announced a Youth Guarantee scheme designed to provide young people on Universal Credit who have not been earning or learning for 18 months guaranteed paid work. While the focus on young people is welcome, they must not be pushed into “any job” under the threat of sanctions. Work Foundation research has found that young people are twice as likely to be in severely insecure work relative to workers aged 50-65. Insecure work is an unreliable pathway to more secure and high-paid work. As the Government works out of the details of this policy, it must learn lessons from previous youth employment schemes by focussing on good jobs, making it voluntary for young people and prioritising socially and regionally useful work.

Wage growth slows and cost of living pressure remains as more people over 65 in work

The cooling labour market has hit pay packets as well with nominal wage growth slowing to 4.7% which is the slowest growth in three years. With inflation still elevated, this is equivalent to a paltry 0.6% growth in real earnings. Workers are only £25 better off per week since the onset of the financial crisis of 2008. These figures indicate that households are still in the middle of a living standards squeeze and are yet to feel better off.

Chancellor must prioritise boosting economic growth in the Budget

In the build-up to the Autumn Budget, there has been a lot of speculation on what taxes may have to rise to meet the Chancellor’s fiscal rules. No doubt the experience of last year’s rise in employer National Insurance contributions will loom large, as it is often cited as having had a dampening effect on economic activity, influencing business decisions to defer hiring and investment.

However, any decisions on tax must not distract from the priority of driving economic growth and creating good quality jobs all over the country, together with the commitment to invest in employment support programmes for those out of work. Raising living standards and ensuring people feel better off will be the key indicator of the Government’s success in this Parliament. Today’s figures suggest that there remains a long way to go to achieve this aim.

Further reading

How to do a jobs guarantee well (October 2025) – Alice Martin

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