Professor Emeritus Joe Nellis is economic adviser at MHA, the accountancy and advisory firm.

Labour market data for November reported an unemployment rate of 5.1%, signaling that many employers remain cautious. Recruitment has softened and some firms continue to reduce headcount, reflecting weaker demand in some sectors, still-tight financial conditions and the lingering effects of higher costs.

This is not a collapse, but we are seeing a meaningful loosening compared with the exceptionally tight labour market seen in recent years.

However, the long-term trajectory for the labour market is more positive. Unemployment is likely to peak in the early months of 2026 and then cool as the year progresses. As stable — if not expansive — growth filters through the economy, and businesses are able to act with more certainty following the Autumn Budget and commit to long-term recruitment decisions, we can expect unemployment to fall.

Youth unemployment, at over 15%, will remain a particular concern, as entry-level hiring is being reduced and some short-term contracts are not being renewed.

If high youth unemployment continues, the risks extend: the longer you are out of work, the more unemployable you become. Prolonged spells out of work can reduce skills acquisition, lower lifetime earnings, and weaken productivity growth over time. An ageing population is already a key concern for the UK’s long-term economic prospects. If young people, a falling proportion of the population, fail to enter the workforce, we are set to face an even more severe skills shortage in the coming decades, particularly if immigration continues to fall.

To get young people into permanent and meaningful work and protect against potential skills shortages, it is crucial that the Government supports practical skills training and education, while encouraging the private sector to invest in the next generation of talent.

The inflation landscape

The slight slowdown in earnings growth (excluding bonuses) to 4.5% reinforces the sense that domestic inflationary pressure is easing. While pay growth remains above levels associated with a fully stable inflation environment, the direction of travel is clearly downward.

For policymakers, this is an important signal that the risk from wage-driven inflation is moderating, potentially creating more room for a shift towards supporting growth as 2026 approaches. This is likely to result in another cut in interest rates by the Bank of England in Spring.