ONS Labour Market data: Youth Unemployment Surges by 106,000. Sector Reaction

The latest ONS Labour market figures were released today: Unemployment is at 4.4%, up on the year, and on the quarter, there are now nearly two jobseekers for every vacancy. There is a rise in youth unemployment, with 106,000 more people aged 18-24 unemployed than a year ago. Which is interesting, as this week we had the Pathways to Work Green Paper released earlier this week and the Keep Britain Working Paper was released on the same day as the ONS Labour Market data.

• The January employment rate came in at 75.0%, up slightly on the three months to December 
• Unemployment came in at 4.4%, versus 4.4% in the three months to December and market expectations of 4.4% (Trading Economics)
• Economic Inactivity in the three months to January came in at 21.5%, unchanged versus the three months to December 
• Annual wage growth came in at 5.9%, versus 5.9% in the three months to December and market expectations of 5.9% (Trading Economics)

Estimates for payrolled employees in the UK increased by 9,000 (0.0%) between December 2024 and January 2025 and rose by 44,000 (0.1%) between January 2024 and January 2025.

Payrolled employees fell by 9,000 (0.0%) over the quarter but rose by 72,000 (0.2%) over the year, when looking at November 2024 to January 2025. This is the period comparable with our Labour Force Survey (LFS) estimates.

The early estimate of payrolled employees for February 2025 increased by 21,000 (0.1%) on the month and increased by 66,000 (0.2%) on the year to 30.4 million. The February 2025 estimate should be treated as a provisional estimate and is likely to be revised when more data are received next month.

Increased volatility of LFS estimates, resulting from smaller achieved sample sizes, means that estimates of change should be treated with additional caution. We recommend using them as part of our suite of labour market indicators, alongside workforce jobs (WFJ), Claimant Count data, and Pay As You Earn (PAYE) Real Time Information (RTI) estimates.

The UK employment rate for people aged 16 to 64 years was estimated at 75.0% in November 2024 to January 2025. This is above estimates of a year ago, and up in the latest quarter.

The UK unemployment rate for people aged 16 years and over was estimated at 4.4% in November 2024 to January 2025. This is above estimates of a year ago, and up in the latest quarter.

The UK economic inactivity rate for people aged 16 to 64 years was estimated at 21.5% in November 2024 to January 2025. This is below estimates of a year ago, and down in the latest quarter.

The UK Claimant Count for February 2025 increased on the month and is up on the year, at 1.775 million.

The estimated number of workforce jobs in the UK was 36.9 million in December 2024; this is an increase of 403,000 (1.1%) from December 2023, with the largest increase in the employee jobs component, which rose by 248,000 (0.8%).

Employment in the public sector was estimated at 6.14 million in December 2024, an increase of 19,000 (0.3%) compared with September 2024, and an increase of 53,000 (0.9%) compared with December 2023.

The estimated number of vacancies in the UK in December 2024 to February 2025 was 816,000. Vacancies are broadly unchanged on the quarter (with early estimates suggesting a small increase of just 1,000) and are still above pre-coronavirus (COVID-19) pandemic levels.

Annual growth in employees’ average regular earnings excluding bonuses in Great Britain was 5.9% in November 2024 to January 2025, and annual growth in total earnings including bonuses was 5.8%. RTI pay data showed a similar annual growth rate when compared with Average Weekly Earnings (AWE) total earnings including arrear payments.

Annual growth in real terms, adjusted for inflation using the Consumer Prices Index including owner occupiers’ housing costs (CPIH), was 2.2% for regular pay and 2.1% for total pay in November 2024 to January 2025.

There were an estimated 50,000 working days lost because of labour disputes across the UK in January 2025.

Sector Reaction to the latest ONS Labour Market Data:

Responding to the latest ONS figures, Dr Helen Gray, chief economist of Learning and Work Institute (L&W), said:

“It is worrying to see an upward trend in redundancies, coupled with the long-term decline in vacancies and rising unemployment. The potential challenge this poses to people looking for work is all the greater for those with health problems. It remains to be seen whether the measures announced in the Government’s Pathways to Work Green Paper will be able to support the 2.8 million people who are economically inactive due to long-term health problems into work in the context of a contracting labour market.”

The Recruitment and Employment Confederation (REC) Chief Executive Neil Carberry said:

“Today’s data reflects a greater stability in the labour market, with payrolled employees and job vacancies holding steady, and the employment rate up.

“There’s a frustrating sense of ‘what if?’ in this data though. The upcoming national insurance changes have likely dampened some hiring, adding pressure to businesses already struggling with rising costs – including those providing essential staff for public services. Today’s relatively strong pay numbers also need to be set in the context of the downward pressure on pay we will see from April as employment costs rise.

“In that challenging context, it is good to see progress on tackling economic inactivity. Business and government must work together to get more people into the workforce sustainably. But that has to start with helping business to hire people on whom they are taking a chance. Welfare reform is one part of that, but so is tackling barriers to hiring people on potential. Addressing the design of the Employment Rights Bill to build firm confidence in taking a chance on someone and getting skills right with a focus on learners and their employers should both be priorities if we are to pick up pace.”

Ben Harrison, Director of the Work Foundation at Lancaster University, a leading think tank for improving working lives in the UK:

“In the week that Government launched its Green Paper to create ‘Pathways to Work’ to boost employment levels in the UK, today’s data reveals that while the labour market may be stabilising, a number of stubborn challenges remain.

“In positive news, the labour market continues to produce strong nominal pay growth at 5.9% as it continues to outpace inflation. Nominal pay growth has now been above 4% for three years, the strongest run of pay growth since records began in 2001. This is providing a rare period of real wage growth for workers, who have faced stagnating living standards since 2008.

“Nevertheless, ahead of today’s Bank of England interest rate decision, weak economic growth and sustained pay increases may give policymakers pause for thought before any further interest rate reductions.

“Although vacancies have decreased steadily since 2022, it appears they are levelling off at around 816,000 and are in line with the pre-pandemic levels of early 2020. Unemployment is at 4.4%, up on the year, and on the quarter – there are now nearly two jobseekers for every vacancy. There is a particularly concerning rise in youth unemployment, with 106,000 more people aged 18-24 unemployed than a year ago.

“The Government’s Youth Guarantee has the potential to support more young people into the labour market but as it stands half of young people will miss out as it will only be available to 18–21-year-olds. And things may be about to get more challenging for some young people who are out of work due to ill health, with Government having this week outlined its intention to remove access to the Universal Credit health top-up for those under the age of 22.”

Nicholas Hyett, Investment Manager at Wealth Club, commented;

“The UK Labour market held firm in January, with little change from the Christmas period. That’s in line with expectations but will still be a bit of a relief for the government given worries that rising minimum wages and increased employers national insurance costs might see employers look to trim their wage bills. 

“Average wage growth continues to comfortably outpace inflation, which should continue to ease the cost of living crunch consumers experienced in the aftermath of the pandemic. That is good news for the economy more broadly – helping to boost domestic demand. 

“The big unknown is whether this resilience will continue as the deadline for higher employment taxes looms in April.”

Dr Andrea Barry, Principal Economist, Youth Futures Foundation, comments: 

“Today’s job data from the Office for National Statistics reveals that both the unemployment and economic inactivity figures for those not in full time education has risen notably since this time last year, from 11% to 13%, and 19.2% to 20.8%, respectively. 

“The ongoing labour market challenges means increasing numbers of young people are experiencing the scarring effects of unemployment, which will continue to have troubling effects on their future prospects, as well as the economy. 

“The Government has put the Youth Guarantee at the heart of its employment support offer for young people, reiterated in this week’s Pathways to Work Green Paper. Its success will be vital if we are to meaningfully address this challenge.  

“We know from international evidence in our Youth Employment Toolkit that apprenticeships in particular are an impactful way to support marginalised young people to access jobs, yet we have seen falling participation amongst under 25s in recent years. Rebalancing the apprenticeship system towards creating more opportunities for young people is therefore an essential part of the public policy solution. 

“As the What Works centre for youth employment, we will continue to work closely with Government, employers and others to bring about the systems change needed for more young people to access and be in good work, backed by the evidence.”