The UK labour market is expected to have closed 2025 on a subdued note, with modest hiring in December underscoring a year of significantly weakened job creation. Economists forecast that employers added only around 55,000 positions last month, a figure that would continue the trend of cautious workforce expansion.
A Year of Sluggish Job Creation
December's anticipated job gains, while below November's 64,000, would represent an improvement after the economy lost 105,000 jobs in October. This sharp October decline was largely due to a one-off purge of 162,000 federal workers by Elon Musk's Department of Government Efficiency, a drop that is not expected to be repeated. The overall picture for 2025, however, remains one of deceleration.
The unemployment rate is projected to have slipped to 4.5% in December, down from a four-year high of 4.6% in November, according to data provider FactSet. This slight easing comes despite the broader slowdown, highlighting a complex economic landscape where growth has been healthy but hiring has noticeably weakened.
Data Revisions and Economic Conundrum
The December jobs report, released on Friday 9th January 2026, provided the first clear reading of the labour market in three months. A six-week government shutdown had prevented a report in October, while November's data was distorted by the closure, which lasted until 12th November.
This report caps a year where job growth averaged just 111,000 per month in the first quarter before plummeting to 11,000 in the three months to August. A slight rebound to 22,000 was seen by November. Crucially, these figures are likely to be revised lower in February when the government completes its annual benchmarking. A preliminary estimate suggests this revision could reduce total jobs as of March 2025 by a staggering 911,000.
Furthermore, Federal Reserve Chair Jerome Powell has indicated that the government may still be overstating monthly job gains by about 60,000 due to methodological shortcomings in tracking new and defunct businesses. The Labour Department is expected to update these methods in its report next month.
Policy Responses and Future Outlook
In response to the persistent hiring weakness, the Federal Reserve cut its key short-term interest rate three times in late 2025 to stimulate borrowing and spending. Powell has since signalled a potential pause to assess the economy's evolution, though a surprisingly weak December report could strengthen the case for another reduction at the Fed's next meeting on 27th-28th January.
The central economic puzzle entering 2026 is stark: growth reached a robust 4.3% annual rate in the July-September quarter, driven by strong consumer spending, yet hiring has faltered and unemployment has risen over the last four reports. Economists like Martha Gimbel, executive director of the Yale Budget Lab, are watching for a reversal of this weakness. "I’m really looking for a lot of that weakness to reverse in December," Gimbel stated, "and if it doesn’t, I am going to start getting much iffier about the labour market."
Looking ahead, many remain optimistic that growth—and potentially hiring—will pick up in 2026, partly due to tax legislation approved last summer that should lead to sizeable tax refunds this spring. However, alternative scenarios persist: weak job gains could drag down future growth, or automation and artificial intelligence could allow the economy to expand healthily without creating many new jobs.
Adding to household pressures, inflation remains elevated at 2.7% year-on-year as of November, eroding the value of paychecks and staying above the Fed's 2% target. The final jobs data for 2025 confirms a labour market caught between solid economic expansion and a hesitant recovery in employment, setting a cautious tone for the year ahead.
