Ashley Kate HR - ONS Labour Market Overview

As of February 2026, we’ve analysed the latest UK labour market release from the Office for National Statistics (ONS), covering October to December 2025, with early indicators for January 2026. The data highlights continued softening across employment measures, steady but subdued hiring activity, and moderating wage growth.

These insights remain vital for our business. Shifts in employment levels, candidate availability and pay trends directly influence workforce planning, recruitment strategy and client demand. While the Labour Force Survey (LFS) has benefited from ongoing improvements to sampling and response rates, the ONS continues to advise caution when interpreting short-term movements due to increased volatility. As always, we assess LFS data alongside PAYE, workforce jobs and Claimant Count figures to form a balanced view.

Key Findings

Payrolled Employment Continues to Ease

HMRC payroll data indicates a gradual reduction in employee numbers over the past year. Compared with December 2024, there were 121,000 fewer payrolled employees in December 2025, representing a 0.4% annual decline. Month-on-month movement was minimal, with a small reduction of 6,000 between November and December.

For the broader October to December 2025 period, payroll numbers were down 130,000 compared with a year earlier and fell by 46,000 compared with the previous quarter.

Early estimates for January 2026 suggest total payrolled employment stands at 30.3 million. This represents a 0.4% decrease year-on-year and a marginal monthly fall. As this is an advance estimate, revisions are expected in next month’s release.

Employment Stable Year-on-Year, Unemployment Edges Higher

The employment rate for people aged 16 to 64 was estimated at 75.0% in the final quarter of 2025. Although slightly lower than the previous quarter, it remains in line with levels seen a year earlier.

Unemployment showed a continued upward drift, reaching 5.2%. This marks an increase both compared with the previous quarter and the same period last year, suggesting a gradual loosening in labour market conditions.

Meanwhile, economic inactivity fell to 20.8%. The decline both quarterly and annually indicates that more individuals are either in work or actively seeking employment.

Hiring Demand Largely Holding Steady

Vacancy levels appear to have stabilised. Early data for November 2025 to January 2026 indicates a modest rise of around 2,000 vacancies compared with the previous three-month period, bringing the total to 726,000.

Although significantly below the post-pandemic peak, vacancy numbers remain relatively resilient, pointing to ongoing — albeit cautious — hiring demand.

The Claimant Count rose compared with the previous month but remains lower than a year ago, at 1.691 million in January 2026. As with payroll data, this figure is provisional and subject to future revisions.

Wage Growth Moderates, Real Pay Edges Up

Average earnings growth continued to ease. Annual growth for both regular pay (excluding bonuses) and total pay (including bonuses) was 4.2% in October to December 2025.

Public sector pay growth (7.2%) remains notably higher than private sector growth (3.4%), largely reflecting the timing of pay settlements earlier in 2025. This comparison effect is expected to fade over the coming months.

After adjusting for inflation, real pay growth was modest. Using CPIH, both regular and total earnings increased by 0.5% in real terms. Using CPI, regular pay rose by 0.8% and total pay by 0.7%, indicating that wage growth is now only slightly ahead of inflation.

Industrial Action Remains Elevated

Strike activity persisted at notable levels in December 2025, with an estimated 118,000 working days lost. The majority of these were concentrated in health and social care, primarily linked to ongoing doctors’ strikes in England.

In summary, the latest figures point to a labour market that is gradually cooling rather than sharply contracting. Payroll employment has declined modestly over the year, unemployment has edged higher, and vacancy growth has flattened. Earnings continue to rise, but at a slower pace, delivering only limited real-terms gains. Industrial disputes remain a factor, particularly within public services.

For employers, this environment suggests a shift towards greater candidate availability, steadier hiring conditions and a more balanced — though still competitive — recruitment landscape.

Source: Labour market overview, UK – Office for National Statistics