Today’s ONS figures point to a labour market drifting in the wrong direction as households continue to face cost of living pressures. The Chancellor must use the upcoming Budget as an opportunity to kickstart the economy and ensure people feel better off.

More people looking for work but fewer jobs available

Unemployment has ticked up again and is now at a four year high of 4.7%, which is an increase of 0.5 percentage points on the year. There are now 194,000 more people in unemployment than there were last year. This rise has partly been driven by a fall in economic inactivity as people return to the labour market to look for work.

However, this decrease in inactivity has come as vacancies continue to fall. Vacancies have fallen by over 100,000 since last year and now stands at 728,000. There are now 2.3 unemployed people per vacancy which indicates that finding employment is likely to be harder in the months ahead as competition for jobs intensifies. The Government pledged to “Get Britain Working” and set a target of raising the employment rate to 80% which is equivalent to approximately 2 million more people in work. It has introduced a “Youth Guarantee” to support young people into work alongside a “Right to Try” to incentivise people out of work due to health conditions to try out work without having to worry about losing their benefits. While these policy interventions are helpful, they risk being undermined if the labour market continues to weaken.

Wage growth continues to slow

Nominal wage growth remains robust at 4.8% but continues its downward trajectory. It has dipped below 5% for the first time in three years. The slowing in wage growth is likely to continue due to the fall in hiring and the increase in the number people looking for jobs which does not bode well for household finances.

Figure 1: Annual nominal pay growth (regular)

Source: Work Foundation calculations of ONS data (16th September 2025) using Dataset A01, table 15 Average Weekly Earnings (nominal) - Regular Pay (Great Britain, seasonally adjusted)

Despite the historically strong wage growth of recent years, average weekly wages have only increased by £24 in real terms since the onset of the financial crisis in August 2008. This underscores the challenge the Government faces in improving living standards. Workers are feeling the pinch and are pessimistic about the future. In a recent Work Foundation survey of nearly 4,000 workers, a quarter (26%) stated that they do not expect an above inflation pay rise in the next 12 months.

Chancellor under increasing pressure as Autumn Budget looms

The Government was elected on a mandate of change and pledged to increase economic growth and improve living standards. However, one year into the new Parliament, many workers are yet to feel better off as a stagnant economy and sticky inflation continue to bear down on them.

Against a backdrop of anemic growth, the Chancellor of the Exchequer has limited fiscal headroom and faces the unenviable choice of either raising taxes or cutting spending to stick to her fiscal rules. The Government must ensure that any tax rises they introduce at the upcoming Autumn Budget do not hit lower income workers, who are already feeling the impact of a continued cost of living squeeze.

The continued cooling of the labour market will also increase the pressure on Government to water down its Employment Rights Bill. Business confidence has weakened and the rise in the national minimum wage and employer national insurance has contributed to the slowdown in hiring. However, the Government must resist this pressure and not lose sight of the importance of improving worker rights and protections as it tries to revive the economy and create jobs across the country.

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