The UK labour market may be showing tentative signs of stabilising, but conditions remain challenging for workers and employers. Unemployment remains at 4.9%, vacancies have fallen to their lowest level for 11 years outside the pandemic, and young people continue to face particularly difficult conditions entering the labour market.

At the same time, real pay in the private sector has been falling for around a year and inflation has risen to 3.1%, adding to household living standards pressures.

Ahead of the Government’s Budget on 28 October 2026, the Work Foundation at Lancaster University hosted an online event to explore what policymakers can do to boost jobs, pay and living standards. Work Foundation Director Ben Harrison chaired the discussion with Sanjay Raja (Chief UK Economist, Deutsche Bank), Professor Hilary Ingham (Lancaster University Management School) and Nicola Parkinson (Group Head of People, Eric Wright Group).

The labour market may be stabilising, but this is not yet a recovery

Sanjay Raja opened the discussion stated that there are tentative signs that some of the deterioration seen in the labour market earlier this year may be levelling out. Redundancy notifications have fallen from their recent highs and some employer surveys are pointing towards improving recruitment intentions.

However, he cautioned against the idea that recovery will necessarily follow this stabilisation, describing a labour market that is “really not going anywhere”. Employment remains subdued, workers’ bargaining power has weakened and private sector pay growth is expected to remain constrained.

This matters because global uncertainty and inflationary pressures are also expected to persist. Together, weak employment growth, subdued wages and higher prices risk prolonging the cost of living squeeze.

The challenge for Government is to find a way of balancing fiscal responsibility with the kinds of interventions that can kick start higher levels of sustainable growth. Sanjay welcomed the greater policy focus on planning, infrastructure and industrial strategy, but highlighted a continuing “gap between ambition and delivery”, with business investment and productivity still weak.

From an employer perspective, Nicola Parkinson described how political and economic uncertainty can itself delay hiring and investment decisions. Businesses need confidence that the policy environment will remain relatively stable before making longer-term commitments.

“What we just need now is that bit of stability,” she said, suggesting this could give employers greater confidence to create new roles.

For smaller businesses, the pressures are particularly acute. Professor Hilary Ingham stressed that they have fewer resources to absorb rising energy, employment and other operating costs than larger organisations, strengthening the case for more targeted support.

Young people need more than employment support – they need good jobs to move into

The challenges facing young people ran throughout the discussion. Youth unemployment is at a 12-year high and Work Foundation research has found that more than one in three employers have reduced the number of entry-level jobs they offer young people over the last year.

Hilary warned that becoming disconnected from work at the beginning of a career can have lasting consequences, with “early work experiences or lack of work experiences” potentially following young people throughout their working lives.

Sanjay emphasised that this makes early intervention critical. The longer someone remains outside employment or education, the harder it can become to reconnect them later. He also stressed that the barriers facing young people vary substantially between places, meaning employment and skills support needs to reflect local labour markets rather than follow a single national model.

Yet better support will only go so far if employers are not creating enough opportunities. Nicola stated that many businesses want to recruit younger workers but can be put off by the costs, bureaucracy and practical demands involved.

The discussion highlighted that foundational sectors, including construction and social care, could offer more opportunities for young people across the country. However, simply creating entry-level vacancies is not enough. Hilary made the case for clearer career structures in social care, while Nicola highlighted the important role of better job design, training and progression to make roles attractive and sustainable.

Technology presents another challenge. Sanjay said the evidence so far suggests that in the UK, AI is functioning “more copilot than autopilot”, augmenting workers rather than driving widespread job losses.

But its impact may already be felt earlier in the recruitment process. Ben Harrison highlighted Work Foundation and Lancaster University research in Morecambe where young people described submitting large numbers of applications through increasingly automated systems while rarely receiving human interaction or feedback. As employers adopt new technologies, ensuring young people still have meaningful routes into the workplace will be increasingly important.

Devolution could help connect jobs, skills and growth but places need the tools to deliver

The panel agreed that the challenges look very different depending on where people live. Sanjay suggested that employment support, skills provision, transport and health services can be better tailored where local leaders understand the barriers facing workers and employers in their own economies.

But he cautioned that fiscal devolution is “part of the solution, but it’s not the solution”.

For devolution to work, he said places need four ingredients: strong leadership, effective institutions and checks and balances, public support, and meaningful fiscal powers. Giving local leaders more responsibility without the resources to act risks simply shifting accountability rather than changing outcomes.

Hilary similarly warned that “you can give people autonomy, but if they’ve got no resources” it will achieve little. She also emphasised that economic inequalities exist within apparently successful city-regions, with communities on the peripheries of growing cities often facing very different labour market opportunities from those in city centres.

Nicola highlighted how greater local decision-making could help focus investment more closely on the infrastructure, construction and skills needs of individual areas.

As the Government approaches the Budget, the challenge is bigger than preventing further deterioration in the labour market. Policymakers need to convert tentative signs of stability into stronger investment, more good jobs and rising living standards in every postcode.

That will require national economic policy and place-based action working together – and a particular focus on ensuring young people are not left waiting for a jobs recovery to reach them.

Watch the full discussion on YouTube.

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