Top line labour market update
The latest update from the Office for National Statistics (ONS) presents a mixed picture of the UK labour market, offering some more encouraging indicators than in previous updates, albeit minor.
The data reveals an increase in employment, with the proportion of people aged 16 to 64 now employed edging up to 75%, both a quarter on quarter and year on year improvement. The good news is offset however by an unemployment rate remaining stubbornly stuck at 4.4%. Meanwhile, the rate of economic inactivity, which refers to individuals neither working nor actively seeking work, sits at 21.5%, down in the last quarter and lower than estimates of a year ago.
Sector trends
Services have remained a steady contributor, growing 0.2% in the final quarter of 2024 and continuing to show slight gains into 2025. Notably, most of this growth has come from an increase in payroll employment, with public sector jobs also seeing a modest boost, reaching 6.14 million. Despite the broader economic challenges, the number of job vacancies has stabilised at 816,000 – a figure that remains higher than pre-pandemic levels. This suggests there is still strong demand for workers, but businesses are likely facing difficulties filling roles due to skill shortages and the continual economic uncertainty along with the tax increases businesses are soon to face.
The retail sector, however, is grappling with significant pressures. WHSmith has announced plans to close up-to 20 stores, redirecting focus to their more profitable travel outlets. These closures reflect a broader trend, with approximately 35 shops shutting daily across the UK in 2024 – though this is a decrease from the 14,801 closures in 2023. Interestingly, while traditional retail is in decline, sectors like coffee shops and convenience stores are expanding, highlighting shifting consumer behaviours.
Meanwhile, technology and professional services are experiencing substantial growth. Fastest-growing industries include immersive technology, non-alcoholic beer production, and language learning software, with projected revenue growth rates of over 20% for 2025. However, this expansion is primarily concentrated in London and the South East, potentially widening the regional economic divide. Overall, the market across sectors seems mixed – marked by resilience in services and high-demand industries and contrasted by the ongoing struggles of traditional retail and a cooler labour market.
Workforce & skills outlook
Economic inactivity remains a persistent issue, with around 2.8 million people out of work due to long-term sickness. There are still 700,000 more individuals outside the labour market compared to four years ago, contributing to a tightening labour market and amplifying skill shortages across various sectors.
Despite a slight increase in payrolled employees, and the first modest rise in vacancies in over 2.5 years, overall job creation has remained subdued, and the number of job vacancies indicates employers are struggling to fill roles. The mismatch between workforce skills and employer needs is becoming more evident, with sectors like healthcare, tech, and skilled trades particularly affected. As wage growth begins to decelerate yet remains higher than inflation targets, the challenge of balancing talent attraction, retention, and cost management is likely to intensify.
What is on the horizon?
While economic inactivity remains a notable challenge, particularly with many individuals unable to work due to health conditions, there does seem to be a silver lining. Employers are being encouraged to enhance health support to help more people stay in or return to work. This, alongside other measures, could offer a much-needed shift in the right direction. Additionally, the Bank of England is likely to keep interest rates at 4.5% as it balances the challenge of slowing wage growth with persistent inflation pressures, though this is a careful balancing act.
On the industrial front, while 50,000 working days were lost to strikes in January 2025, illustrating ongoing tensions over both pay and conditions, the broader picture isn’t all doom and gloom. There is growth in certain sectors, and efforts to address these challenges head-on may create opportunities for both employers and workers alike.
A more concerning trend, however, is the rise in unemployment benefits claims, reaching 1.76 million in February 2025, indicating that, despite job growth, economic pressures are still pushing more individuals to seek financial support. That said, with ongoing efforts to address skill shortages, health-related work challenges, and wage disparities, we remain hopeful for more positive change on the horizon.
Spotlight on the Spring Statement
In the Spring Statement, Chancellor Rachel Reeves outlined measures designed to balance economic stability with long-term growth. While the Office for Budget Responsibility (OBR) revised the 2025 growth forecast from 2% to 1%, the government has committed to increasing defence spending by £2.2bn, creating potential job opportunities in the defence and manufacturing sectors. This investment aims to stimulate job creation, support supply chains, and bolster national security. Additionally, efforts to streamline public spending are intended to reduce inflationary pressures, which could help stabilise the cost of living and create a more predictable economic environment for businesses.
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This update is based on the latest data from the Office for National Statistics (ONS), published on 20 March 2025. As ONS figures are subject to ongoing revision, some data points may differ slightly from our previous market updates, based on month-on-month vs quarterly comparisons. For the most up-to-date figures, please refer to the ONS website.
