Unemployment Inches Up as Payroll Numbers Subside
The latest figures from the Office for National Statistics (ONS) for February 2026 suggest a market that is continuing to cool. While vacancy levels have remained remarkably flat, the rise in the headline unemployment rate and a steady decline in payrolled employees indicate that the post-pandemic hiring frenzy has transitioned into a more cautious, stable phase.
Key Statistics from the ONS (February 2026)
- Unemployment on the Rise: The UK unemployment rate for October to December 2025 was estimated at 5.2%. This is an increase on the previous quarter and sits above the levels seen this time last year.
- Falling Payroll Numbers: Estimates for payrolled employees fell by 121,000 over the last year. The provisional figure for January 2026 shows a further monthly dip, bringing the total to 30.3 million employees.
- Employment and Inactivity: The employment rate decreased slightly to 75.0% for the final quarter of 2025. Conversely, the economic inactivity rate fell to 20.8%, suggesting that more people are moving back into the labour market, even if they have not yet secured a role.
- Vacancies Level Off: The number of vacancies remains broadly flat. Early estimates for the period between November 2025 and January 2026 show a minor increase of 2,000 roles, taking the total to 726,000.
- The Pay Gap: Annual growth in average regular earnings was 4.2%. However, there is a stark divide between sectors: public sector pay grew by 7.2%, while private sector growth lagged behind at 3.4%. When adjusted for inflation (CPIH), real-term pay growth remains a modest 0.5%.
- Labour Disputes: December 2025 saw 118,000 working days lost to industrial action. Over two-thirds of these were concentrated in the health and social work sector, primarily due to doctors’ strikes in England.
- Claimant Count: The number of people claiming benefits principally for unemployment rose to 1.691 million in January 2026.
What This Means for Employers and Job Seekers
The shift to 5.2% unemployment indicates that the talent market is becoming slightly less tight than in previous years. For employers, this theoretically means a larger pool of available candidates, evidenced by the 1.691 million individuals currently on the Claimant Count. However, with vacancies remaining stagnant at 726,000, competition for the highest-quality roles remains significant.
The data also reveals a widening gap in wage expectations. With public sector pay growth significantly outstripping the private sector (7.2% vs 3.4%), private firms may find it increasingly difficult to compete for talent purely on salary. When you factor in that real-term pay is only growing by 0.5%, workers are still feeling the pinch, meaning non-monetary benefits and workplace culture will be vital tools for retention.
For job seekers, the message is one of resilience. While the headline employment rate has dipped, the fall in economic inactivity suggests that more people are actively engaging with the market. Success in this environment will require a focus on sectors showing stability, even as the broader payroll numbers contract.
How Pure Staff Can Help
Navigating a changing labour market requires a recruitment partner who understands your sector inside and out. Whether you need flexible temporary staff to manage seasonal peaks in industrial and warehousing, or reliable permanent candidates for driving and commercial roles, Pure Staff is here to support you.
We can help you adapt your hiring strategy to these new dynamics, ensuring you attract the right talent while remaining compliant and cost-effective.
Get in touch with our team today to discuss your workforce requirements for 2026.
