Young People Bear the Brunt as Labour Market Softens, latest ONS data shows

Starter jobs are disappearing faster than the wider market, youth unemployment is climbing, and one in three young people outside full time education is now out of work. The latest regional labour market figures from the Office for National Statistics point to a jobs market that is cooling fastest for exactly the people the FE and skills sector is working hardest to reach.

The June release shows the UK employment rate holding at 75.0% for the 16 to 64 age group, with unemployment at 4.9% and economic inactivity at 21.0%. On the surface that reads as stability. Underneath it, the picture is more uneven, and for young jobseekers it is getting harder.

The regional picture

Employment rates ranged from a high of 78.2% in both the East of England and the South East down to 71.1% in the North East in the February to April period. London recorded the highest unemployment rate at 6.6%, while Northern Ireland had the lowest at just 1.7%. Northern Ireland also carried the highest economic inactivity rate in the UK at 26.8%, against a low of 18.3% in the East of England.

The standout regional movement was in the North East, where employment jumped 2.8 percentage points over the year while inactivity fell 3.0 points, the sharpest annual shift anywhere in the country. Most other regions saw inactivity edge down on the year even as it ticked up on the quarter, a reminder from ONS that the longer term trend is the more reliable read given the volatility in the underlying survey.

Payrolled employee numbers fell across every region and nation except Northern Ireland, which saw an increase of 1.3% when comparing May 2026 with the same month a year earlier. ONS flagged the May figures as provisional and likely to be revised. Workforce jobs fell in nine of the twelve UK regions between March 2025 and March 2026, with the South West seeing the largest drop at 47,000.

Summing up the release, ONS Director of Economic Statistics Liz McKeown said:

“The labour market remained broadly stable in the latest quarter, with further softening evident in some measures. Payroll numbers continued to fall over this period, with new recruits at their lowest level in five years. However, overall employment was little changed, with some signs of workers moving into self-employment.

“Vacancies also continued to fall, further suggesting that firms are becoming more cautious about taking on new staff. The decline has been most persistent among lower-paying sectors and smaller employers, although the largest fall this quarter was in professional services.

“Meanwhile, regular wage growth in the private sector slowed to its lowest rate in five and a half years, though total earnings are growing faster because bonus payments in March and April are higher than a year ago, particularly in the financial sector. Public sector pay growth increased but is once again affected by the timing of pay awards varying this year.”

What it means for the sector

The headline rates may look steady, but the detail tells the FE and skills sector something it already feels on the ground. The roles that give young people a first step are vanishing fastest, demand for staff is easing across most regions, and the case for a serious, localised response on youth employment and NEETs is getting louder. The figures land against the backdrop of the Milburn interim review on NEETs and ONS data showing the number of young people not in education, employment or training crossing one million. The next release is due on 21 July.

These are official statistics in development. ONS advises caution when drawing conclusions from short term changes given the volatility in Labour Force Survey estimates, and recommends focusing on longer term movements.

Sector reaction

Shazia Ejaz, Director of Campaigns at the Recruitment and Employment Confederation (REC), said:

“Much of the job market is on standby mode as employers wait for clearer signals while geopolitical tensions unfold. Global pressures and domestic political uncertainty are making employers hesitant to commit to hiring although latest REC data shows temp hiring is faring better than permanent.

“While employment and unemployment levels remain broadly steady in today’s data, this is a difficult labour market for jobseekers. Vacancies are falling across most sectors and workforce jobs are declining across many regions, showing demand for staff is easing.

“With the Gulf crisis resolution on the table, the government has an opportunity to kick off a new phase in hiring. It will take a more pragmatic approach, one that supports business confidence and seriously rethinks its guaranteed hours proposals. Coupled with increases in National Insurance costs, these rules risk a tipping point for hiring that could dent the resilience that UK businesses have shown in recent times.”

Ben Harrison, Director of the Work Foundation at Lancaster University, said:

“Today’s figures indicate that the labour market remains in a precarious position and requires the Government to double down its efforts to grow the economy.

“While unemployment may have fallen slightly from last month to 4.9%, 124,000 more people are out of work relative to last year. More than two thirds of this increase has been driven by young people aged 18–24, while youth unemployment remains well above the level seen for much of this century. At the same time, opportunities to gain a foothold in the labour market have declined. Recent Work Foundation analysis of Adzuna data found that the number of ‘starter’ jobs available to first-time entrants has fallen by 49% over the last decade.

“And while overall vacancies have declined to their lowest level since 2021 at 707,000. This is particularly bad news for young jobseekers who are facing an increasingly sparse and challenging jobs market. While total vacancies have fallen in recent years, the decline in starter jobs has been 1.6 times faster than for other jobs in the last 12 months.

“This data underlines that whoever is Prime Minister in the months ahead, Government should prioritise action to boost secure jobs and support those out of work. For young people, we need to see a bolder, more localised approach to the Jobs Guarantee focussed on providing access to good quality, secure employment opportunities. And more broadly, Government must avoid an approach that pits welfare support for those out of work as being in opposition to providing better pathways to sustainable employment.”

Stephen Evans, chief executive at the Learning and Work Institute, said:

“The labour market remains fairly flat overall, but with some worrying signs. One in three young people not in full-time education are not in work either. Following the Milburn Review this further confirms the need for urgent action to support young people who are not in education, employment or training. Employment is fairly flat overall, but with 220,000 fewer people working in retail and hospitality than two years ago and the main growth in health and social work (up 90,000).”on longer term movements.

Jeanette Wheeler, Chief People Officer at MHR, said:

“The latest figures suggest a labour market that is holding steady on the surface, but still showing signs of strain underneath. The employment rate remains unchanged at 75%, unemployment has edged down to 4.9%, and earnings continue to grow slightly faster than inflation. That will be welcome news for many people who have faced a prolonged squeeze on their finances.

“But the continued decline in vacancies tells a different story. Vacancies are now at their lowest level since early 2021. Employers are being cautious about taking on new hires as they navigate high labour costs, economic uncertainty and ongoing global pressures. While that caution is understandable, it is creating fewer opportunities for people looking to enter the workforce or make a career move. Some sectors are feeling this more than others, with industries such as retail and food service continuing to face significant cost pressures.

“At the same time, many organisations are rethinking workforce requirements as new technologies, particularly AI, reshape how work is carried out. Rather than simply filling roles as they have in the past, employers are increasingly considering what skills they will need in the future and how technology may change job design. This is contributing to a more measured approach to recruitment, while businesses assess where best to invest in talent and capability.

“With the Bank of England expected to hold interest rates again, many employers will be hoping for greater certainty in the months ahead. The risk is that businesses become trapped in a cycle of waiting for conditions to improve rather than investing for future growth through upskilling their existing workforce and creating opportunities for new talent.

“The labour market is holding up better than many expected earlier this year, but there are still challenges ahead. Business leaders should take confidence from that, while remembering that future growth depends on investing in people now. As AI adoption accelerates, it could drive greater demand for apprenticeships and training programmes focused on digital and AI skills, helping to equip the workforce for the jobs of tomorrow.”

Harry Hobbs, Head of Business Intelligence at Baltic Apprenticeships, said:

“It’s been a challenging year for those navigating the jobs market, and today’s figures are a further reflection of that. A slight decrease in headline vacancies to 707,000 doesn’t offer much encouragement for those on the sidelines, particularly younger people.

High-profile structural problems identified in recent months haven’t gone away. Young people aren’t just out of work; the Milburn review revealed many are so disengaged with the system that they aren’t even looking. This is a serious long-term risk because young people who don’t engage now are more likely to remain locked out of the labour market.

“To see meaningful improvement, we need to address current shortfalls in the bridge between education and work. Young people are increasingly questioning the value of traditional pathways, and fewer are being supported into high-quality alternatives like apprenticeships. The latter are an important route into skilled work. Delivered properly, they can help young people earn and learn, develop technical skills and open doors to long-term employment opportunities upon completion.”

The Welsh Government said:

“As a newly elected Government we are committed to driving investment, innovation and higher productivity across Wales.

“We have announced a National Productivity Goal to close the gap with the rest of the UK and help unlock the full potential of the Welsh economy.

“By focusing on productivity, we will deliver more jobs, higher pay, stronger businesses and thriving communities.

“This goal will give direction to our new Welsh innovation and development agency, shaping how we support businesses, develop skills and invest in the foundations of a stronger, more competitive Welsh economy.

“Evidence from a range of sources suggest the labour market in Wales is following a similar trend to the UK as a whole.

“Amid continued interventions from the Office for National Statistics (ONS) to increase the quality of the Labour Force Survey (LFS) data, we continue to recommend using the LFS data alongside the trends in other measures of the labour market to gain a clearer picture of the Welsh labour market.

“Latest figures from the Annual Population Survey (APS) show the unemployment rate for people aged 16 and over in Wales was 4.5% compared to the UK rate of 4.4%. It also shows Wales’ employment rate is relatively close to the all-time high.

“The Cabinet Minister for Enterprise, Connectivity and Energy, Adam Price, is keen to meet with the ONS to discuss the reliability of Labour Market data for Wales.”

Jack Kennedy, Senior Economist at Indeed comments:

“The latest figures offer a cautious note of reassurance. Payrolled employment has stabilised and the unemployment rate has edged down – tentative signs that the labour market may be finding a floor after months of softening.

“The picture for young people remains deeply concerning, however. Youth unemployment is still at its highest in over a decade, and Indeed data shows summer job postings running 31% below last year, closing off one of the most important entry points into the world of work.

“With the Bank of England now looking less likely to hike rates amid a softer inflation backdrop, the headwinds facing the labour market may be starting to ease. A more benign policy environment could help rebuild employer confidence and support hiring. For a jobs market that has been under sustained pressure, that may be just enough to help it find its footing.”

Sharon Steiner, CHRO, Fiverr comments: 

“Today’s figures offer some reassurance that the labour market is holding up, but stability should not be mistaken for strength. With UK youth unemployment now higher than the EU average and a record number of young people believing they are destined for unemployment, hiring remains cautious, and many workers are rethinking what a secure career now looks like.

“Workers are increasingly turning to portfolio careers as a way to navigate a challenging labour market. Fiverr’s research shows that more than half of Gen Z believe traditional employment models are becoming obsolete, while many are already freelancing or planning to. For workers, it offers a route to income, experience and autonomy; for businesses, it provides fast access to the skills they need in a slow-growth economy.

“AI is also changing where value sits in the workforce – as access to AI tools becomes universal, competitive advantage will sit with the talent able to use them creatively and commercially. PwC’s AI Jobs Barometer suggests AI is increasing the value of human skills. Fiverr’s latest Business Trends Index reflects this, with demand for specialist AI skills rising 107% in the UK over the past six months. The dominance of AI is changing what kind of talent is seen as valuable, meaning the UK’s future workforce will not be defined by tools alone but by the people who can turn them into economic value.”

Anthony Salcito, Senior VP for Enterprise, Coursera:

“Today’s figures show a slight bounceback in employment rates. However, this data must be assessed alongside longer-term trends and recent data that reiterate that recent graduates and early-career workers still face significant barriers to employment, with one million people between 18 and 24 years old not in education, training or work. If this issue is not addressed as a matter of urgency, it will damage any chances of sustained improvements in the UK economy, and threaten the prospects of a generation of young people. 

“What we now need is a longer-term solution for reigniting growth in the job market, starting with reimagining university degrees and further education. One in seven young people not in work today hold a degree, yet the evolving labour market increasingly demands candidates who are both broadly educated and specifically skilled. To support this shift, the government can invest more in targeted learning programmes, such as microcredentials, that complement a degree with job-relevant skills in high-demand areas like AI, data analysis and cybersecurity. 

“The evidence that this approach serves early-career learners well is compelling. Recent Coursera data highlights that 87% of graduates with microcredentials secured a role aligned to their field within a year, demonstrating the value employers place on candidates who can combine academic knowledge with practical, in-demand skills. 

“Equipping graduates with practical, job-ready skills – ideally during their tertiary education – will be an essential long-term solution to help close the gap between education and employment.”

Chris Goulden, Deputy CEO at Youth Futures Foundation, comments: 

“Today’s ONS Labour Market statistics reveal that both unemployment and economic inactivity have risen. Around 1 in 7 young people not in full time education and in the labour force (14.2%, around 462,000) are searching but unable to find work. Additionally, 1 in 5 (21.4%, or around 884,000) young people not in full time education are economically inactive. Since last year, these numbers have increased by around 57,000 unemployed young people and 51,000 more who are economically inactive. 

“The statistics offer another concerning snapshot of the number of young people who are struggling to enter the workforce. As Alan Milburn’s interim Young People and Work report stresses, decisive action is essential if we are to reverse these long-standing youth employment trends. 

“While increased investment in the Youth Guarantee and efforts to rebalance the apprenticeship system towards young people are welcomed, to address the scale of the challenge, fundamental systems change is needed. This includes acting early in education, working with employers to create more apprenticeships and tailored employment support for young people facing more barriers – like those with SEND or care experience.  

“We have a moral obligation to take this review as an opportunity to improve outcomes for young people, and there is a clear societal and economic case for getting this right. If the UK could match the youth participation rates in the Netherlands that would mean 567,000 more young people earning or learning, delivering an £86 billion boost to the economy long-term.”