UK Labour Market in 2025: Recovery, Resilience, and Remaining Risks
As the UK navigates the post-pandemic economic landscape, the latest labour market figures from the Office for National Statistics (ONS) offer a mixed picture—showing signs of recovery, tempered by structural weaknesses and data limitations. From employment growth to wage trends, and from economic inactivity to vacancies, these statistics provide a critical lens into how work and income patterns are evolving in Britain today.
Employment: An Upward Shift, With Caveats
Between January and March 2025, the UK saw a rise in employment, with 33.98 million people aged 16 and over reported as employed. For those aged 16–64—the core working population—the employment rate stood at 75.0%. This represents a notable increase both in the number of people employed (up by around 640,000 over the year) and in the employment rate itself.
While the headline numbers suggest progress, interpreting these figures comes with a caveat. The ONS has flagged ongoing reliability issues with the Labour Force Survey (LFS), the primary source of employment data. In February 2024, LFS data was reintroduced after a pause caused by falling response rates and concerns about its accuracy. Although the ONS has reweighted some of the figures using updated population estimates, users are advised to treat these estimates with caution.
To validate employment trends, the ONS encourages comparisons with other datasets, such as PAYE-based payrolled employee figures and the Workforce Jobs series. Strikingly, these alternate sources paint a more subdued picture:
- Payrolled employees fell by 4,000 in the year to March 2025, and by 53,000 in the first quarter of 2025.
- Early estimates suggest a further decline in April 2025.
- Meanwhile, Workforce Jobs—a broader quarterly measure—shows an increase of 403,000 jobs in the year to December 2024.
So while the LFS points to a healthy uptick in employment, other datasets inject a dose of realism into this optimistic view.
Unemployment: Rising in Tandem with Employment
In a somewhat paradoxical twist, the UK unemployment rate also rose over the same period. As of March 2025, unemployment stood at 4.5%, translating to 1.61 million people actively seeking work. This is up by 110,000 people compared to a year earlier.
How can employment and unemployment rise simultaneously? This dual increase is partly due to changes in economic inactivity—the portion of the population not actively seeking work due to reasons like studying, illness, retirement, or caregiving. As inactivity falls and more people enter the labour market, they may not immediately find employment, pushing up unemployment figures temporarily.
Economic Inactivity: A Positive Downturn
The number of economically inactive individuals aged 16–64 dropped to 9.23 million, with the inactivity rate declining to 21.4%. This marks an encouraging shift from the pandemic-era highs when inactivity surged due to lockdowns, long-term illness, and shifting work preferences.
This reduction means more people are either employed or actively looking for work—both indicators of renewed labour market engagement. However, the rate remains higher than pre-pandemic norms, and certain demographics (like those with long-term health conditions) remain overrepresented in this category.
Vacancies: Sliding Below Pre-Pandemic Levels
The total number of job vacancies in the UK fell to 761,000 between February and April 2025, down from the peak seen during the 2021–2022 labour shortages. This decline brings vacancy numbers below pre-pandemic levels, signaling a cooling job market.
Several factors could be driving this trend:
- Employer Caution – With economic uncertainty, businesses may be holding off on hiring.
- Automation and Restructuring – Companies are adopting more tech-based efficiencies, reducing demand for certain roles.
- Sectoral Variability – While vacancies remain high in sectors like healthcare and hospitality, others such as retail and admin are showing contraction.
Fewer vacancies combined with a rising unemployment rate may signal growing competition for available jobs, particularly among younger and less experienced workers.
Wages: Real Growth Returns
A silver lining in the data comes from wage trends. After a long period of inflation outpacing earnings, real wages are finally growing again.
In the three months to March 2025:
- Average total pay (including bonuses) increased by 2.6% in real terms.
- Regular pay (excluding bonuses) also grew by 2.6%.
- In nominal terms, pay rose by 5.5% with bonuses and 5.6% without.
These increases reflect both the gradual cooling of inflation and continued upward pressure on wages in competitive labour markets. However, the benefits are not evenly distributed—higher earners and those in finance or tech are likely seeing greater gains than low-wage or public-sector workers.
Understanding the Data: LFS Reliability Challenges
Interpreting labour market data has become more complex due to issues with the Labour Force Survey, the UK's longstanding benchmark for employment statistics. Since 2023, declining participation rates and data quality problems led the ONS to temporarily pause detailed LFS reporting and publish only experimental estimates.
By early 2024, the ONS reintroduced the LFS with updated methodology and population reweighting. However, these changes only apply to data from January 2019 onwards, creating a discontinuity in historical comparisons. The headline employment, unemployment, and inactivity figures have been remodelled back to 2011, but users are cautioned to interpret trends carefully, particularly when comparing pre- and post-pandemic data.
As a result, the ONS recommends using multiple sources, including:
- PAYE-based employee data (HMRC)
- The Workforce Jobs survey
- Business surveys and administrative records
A Labour Market at a Crossroads
The UK labour market in early 2025 presents a paradoxical yet familiar story: gains in employment coexisting with rising unemployment; wage growth amid falling vacancies; and renewed labour force participation despite persistent long-term inactivity.
What emerges is a portrait of a labour market in transition, shaped by both cyclical recovery and deep structural change. Key questions going forward include:
- Will employment growth persist if vacancies continue to fall?
- How sustainable is real wage growth as inflation moderates?
- Can policies address persistent economic inactivity and health-related job exits?
- What impact will AI, automation, and hybrid work models have on job creation and destruction?
Policy Implications
Policymakers and businesses alike face crucial decisions in responding to these shifts. Among the areas demanding focus:
- Support for Jobseekers: With unemployment rising, investments in job matching, skills training, and employment support services will be essential.
- Health and Work: Tackling long-term sickness—one of the biggest contributors to inactivity—requires cross-cutting health and employment interventions.
- Wage Policy: While wage growth is returning, ensuring that it translates into sustainable living standards (particularly in lower-income sectors) remains a challenge.
- Data Quality and Monitoring: Strengthening the integrity of labour market data must be a priority for future policy accuracy and responsiveness.
Final Thoughts
The labour market is often described as a barometer of economic health. In early 2025, the UK's barometer reflects a cautiously improving climate, but with underlying turbulence. Employment is rising, real wages are rebounding, and more people are entering the workforce—but vulnerabilities remain.
The story these statistics tell is one of resilience with rough edges—a nation that has weathered significant economic storms, but still faces headwinds as it charts the next phase of growth. With improved data and responsive policy, the UK can build on these gains to ensure that the labour market works better—for everyone.
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