Unemployment rises as wage growth cools
The UK’s labour market showed signs of cooling in the closing months of 2025, according to the latest Labour Market Overview, UK: February 2026 report published by the Office for National Statistics (ONS).
The most recent figures reveal that the unemployment rate rose to 5.2% in the three months to December 2025 – the highest level seen in nearly five years – as employment growth weakened and payrolled employee numbers fell.
ONS data also showed that the number of payrolled employees dropped by around 130,000 over the year to December 2025, with a further slight fall in January 2026. Meanwhile, average weekly earnings growth slowed to 4.2%, with private sector wages rising at just 3.4% – well below historical levels – highlighting the cooling in pay pressures. Real wage growth, once adjusted for inflation, remained marginal. Vacancies have remained broadly flat, with around 726,000 jobs advertised, but this is significantly lower than a year ago and suggests softer hiring demand across many sectors.
Labour inactivity – those not actively seeking work – saw marginal movement but remains elevated compared with previous years. Economic analysts have suggested that weakening labour market indicators could prompt the Bank of England to cut interest rates as early as March 2026 to support the broader economy.
Regional pressures with West Midlands impact
The West Midlands continues to feel the effects of these national trends. Recent data has shown the region has some of the highest unemployment rates in the country outside London, with estimates in late 2025 placing the West Midlands unemployment rate above the national average.
Commenting on the latest labour market statistics, Professor Paul Cadman, CEO of Birmingham and Walsall based Starting Point Recruitment, said the figures underscored the tough environment for both jobseekers and employers. “The UK jobs market is clearly under pressure, and our region is no exception. While rising unemployment and slowing wage growth are concerning, we are continuing to support candidates locally by focusing on their potential and matching them with opportunities that play to their strengths,” Professor Cadman said. “It’s crucial that employers and policymakers work together to create sustainable job opportunities that reflect the skills and aspirations of people across the Midlands.”
Starting Point Recruitment has reported stronger placement outcomes in 2025 compared with 2024, reflecting local resilience amid national weakness.
Outlook
Economists are watching the figures closely for signs of further labour market deterioration or stabilisation. With inflationary pressures easing, the softer job market may give the Bank of England room to cut interest rates – a move that could stimulate hiring and investment but which also reflects weaker economic conditions.
