The latest data from the ONS and HMRC paints a picture of a cooling yet complex labour market. As your recruitment partner, we’ve broken down the key trends to help you navigate the current landscape, whether you are looking to hire or looking for your next move.
For Our Clients: Navigating a Cooling Market
The data suggests a slight softening in the employment landscape, providing a broader talent pool but requiring a more strategic approach to attraction.
- Payrolled Headcount is Easing: The number of payrolled employees fell by 134,000 over the last year, reaching 30.3 million in January 2026. This indicates that some firms are tightening their belts or delaying backfills.
- Unemployment & Inactivity: The unemployment rate has ticked up to 5.2%, while economic inactivity has decreased to 20.8%. This means more people are actively entering the job market and looking for work than this time last year.
- Vacancy Stability: Despite the drop in employees, vacancies have remained broadly flat at 726,000. The “war for talent” hasn’t ended; it has simply become more targeted.
- Wage Pressure: Annual regular pay growth stands at 4.2%. While this is a slowdown from previous peaks, it still outpaces inflation, meaning candidates remain focused on competitive salary packages.
For Our Candidates: Real Gains and New Opportunities
While the headline numbers suggest fewer total roles, the environment for job seekers remains relatively positive in terms of purchasing power.
- Real-Term Pay Rises: For the first time in a long while, pay is consistently beating inflation. Adjusted for CPI, regular pay grew by 0.8% in real terms. Your “take-home” value is finally starting to feel heavier.
- A “Flat” Vacancy Market is Good News: With over 720,000 live vacancies, there is still significant churn and opportunity across most sectors. Businesses are still hiring, though they are being more selective.
- Public vs. Private Sector: Public sector pay growth (7.2%) is significantly outperforming the private sector (3.4%), though this is partly due to the timing of pay awards. It may be a good time to consider roles across both sectors to maximise earning potential.
Indicator |
Latest Figure |
Trend (vs. Last Year) |
| Employment Rate | 75.0% | Unchanged |
| Unemployment Rate | 5.2% | Up |
| Vacancies | 726,000 | Down (73k lower than LY) |
| Regular Pay Growth | 4.2% | Slowing |
| Real Pay Growth (CPI) | 0.8% | Improving |
We are seeing a shift from the frantic hiring of 2024 to a more “considered” market. Employers are focusing on quality over quantity, and candidates are prioritising stability and real-term wage growth. With inactivity falling, we expect a more competitive application process for the best roles.
