UK Labour Market Softens as Wage Growth Cools, but Jobless Claims Undershoot Forecasts

January and late 2025 UK labour market figures tell a tale of slow cooling instead of outright weakness. Rising by 13.4K in January 2026 to 1.691 million, the Claimant Count fell short of the projected 22.0K rise and was also below December's revised 17.9K increase. Although year-on-year claims decreased, this small monthly increase differs from that trend; however, ongoing changes tied to administrative sources, such as work capacity evaluations, keep the exact trend unclear.

Wage dynamics reveal a more evident loss of momentum. For both basic and total remuneration in the three months to December 2025, average weekly earnings growth decelerated to 4.2% year on year from 4.5% and 4.7% respectively. In real terms, pay growth was 0.5% after CPIH adjustment, underlining that although salaries are still outpacing inflation, the margin is narrowing.

Divisions among sectors highlight this divergence. While private sector normal pay was considerably more modest at 3.4%, indicating more corporate caution, public sector regular pay increased by 7.2% year-on--year, yet still showing base effects from prior significant pay awards. With the Labour Force Survey unemployment rate at 5.2% in Q4 2025, the data overall suggest a labour market that is loosening at the margin, easing wage-pressure risks but not yet pointing to a sharp deterioration in employment conditions.