The labour market continued to slow at the end of 2025, with hospitality and retail sectors seeing the largest declines in employee jobs.
The percentage of households in Great Britain who said they would not be able to pay an unexpected but necessary expense of £850 or save any money in the next 12 months has been slowly falling since its peak in 2022 and 2023. This is a sign household financial resilience is recovering.
Inflation increased between November and December 2025, but this increase was mostly due to the timing of the 2025 Budget and when price data for air fares was collected. Forecasters expect inflation to fall in 2026.
The labour market continues its slow decline
The unemployment rate has been slowly increasing in the last year. It reached 5.1% in September to November 2025, its highest level since 2021, during the covid-19 pandemic, and up from 4.4% the year before.
Data from HMRC on the number of PAYE (Pay As You Earn) employees shows that employee numbers fell by 135,000 in the year to September to November 2025.
As shown in the charts below, accommodation and food services (the hospitality sector) and wholesale and retail were the industries with the largest falls in employment. Health and social work and transportation and services saw an increase in employees in the year to September to November 2025.
The Library briefing UK labour market statistics provides more detail about the labour market.
Financial resilience has been slowly improving for UK households
There are signs that household financial resilience has been recovering, after falling during the period of high inflation which began at the end of 2021.
The Office for National Statistics (ONS) has been asking adults in Great Britain if their household could afford an unexpected but necessary expense of £850 since November 2021.
The percentage of adults who said their household would not be able to afford the expense peaked at 33% in February 2023. Since then, it has slowly been falling, likely due to easing inflation and strong wage growth, and was 21% in December 2025, the lowest since the survey began.
Source: ONS, Public opinions and social trends, Great Britain: household finances, 18 December 2025
A similar trend can be seen in other measures of financial resilience measured by the ONS: the percentage of adults in Great Britain who think their household would not be able to save any money in the next 12 months peaked at 48% in September 2022 and was 34% in November 2025. The percentage of adults finding it difficult to afford energy bill payments peaked at 49% in around March 2023 and was 34% in December 2025.
The Bank of England uses measures like the debt to income ratio and the share of household income spent on mortgage repayments to assess household financial resilience and said in December that “households remain resilient in aggregate”.
The Library briefing High cost of living: Impact on households provides more information about how households continue to be affected by the period of high inflation in 2021 and 2022.
The increase in inflation in December is mostly about timing and forecasters expect inflation to slow in 2026
Inflation increased from 3.2% in November 2025 to 3.4% in December 2025, the first time the rate has increased since July.
However, much of the increase is due to timing. For example, the 2025 Budget was later than in 2024 – in late November instead of late October – which meant the rise in tobacco duty at the 2024 Budget appeared in the November 2024 figures, but the rise in the 2025 Budget appeared in the December 2025 figures. Tobacco inflation was 3.0% in December 2025, compared with 0.7% in December 2024.
Other factors, including the timing of airfares data collection, meant that December’s inflation figure was higher than in November.
Food inflation increased from 4.2% in November 2025 to 4.5% in December 2025, but “core inflation”, which excludes the volatile energy and food components of the Consumer Prices Index (CPI), was 3.2% in December, the same as in November.
ONS, CPI core inflation, series MM23 monthly data to December 2025
Forecasters expect inflation to fall in 2026: the average forecast among economists surveyed by the Treasury in January 2026 was for inflation to be 2.2% in Q4 2026 and the Bank of England said in December that inflation will be “closer to 2%” than 3% by April to June 2026 The Bank expects changes to fuel duty and a reduction in regulatory costs levied on household energy bills to cause a decrease of around half a percentage point in April 2026.
About the author: Brigid Francis-Devine is a researcher at the House of Commons Library specialising in poverty.