The UK labour market showed further signs of strain in the final months of 2025, with unemployment ticking upwards as renewed trade threats from former US President Donald Trump sent a shiver through the London stock market.
Labour Market Weakens as Payroll Numbers Fall
Official figures released on Tuesday 20 January 2026 revealed a challenging picture for the UK jobs sector. Data from the Office for National Statistics (ONS) showed the estimated unemployment rate for people aged 16 and over reached 5.1 per cent for the period from September to November 2025. This marked an increase on the previous quarter and was higher than forecasts made a year earlier.
The number of employees on payrolls fell significantly, dropping by 33,000 in November alone. This decline continues a worrying trend, with the ONS noting that reductions over the past year have been concentrated in the retail and hospitality sectors, reflecting persistently weak hiring activity across the economy.
Liz McKeown, Director of Economic Statistics at the ONS, stated that "the overall picture continues to be of a weakening labour market." This follows damning figures released in December, which showed a 22,000 fall in payrolled employees for September.
Political Pressure and Market Jitters
The persistent rise in joblessness remains a major challenge for the Labour government. Chancellor Rachel Reeves and Prime Minister Sir Keir Starmer have strongly hinted at sweeping welfare reforms in the coming year, although the government previously faced a significant backbench rebellion over similar efforts last summer.
Meanwhile, financial markets faced separate pressures emanating from across the Atlantic. Investors reacted to the latest trade salvo from former President Donald Trump, leading to a risk-off mood on Monday. European markets were broadly lower, with London's blue-chip FTSE 100 index closing down 0.39 per cent at 10,195.35.
A Muted Market Reaction Compared to Past Volatility
Despite the negative sentiment, the market's reaction was notably more measured than during Trump's last major tariff offensive in April 2025. On that occasion, the FTSE 100 plummeted over 11 per cent in a single week. Some analysts suggest that investors may be growing accustomed to Trump's rhetoric, with a growing belief in the so-called 'TACO trade' – an acronym for 'Trump Always Chickens Out' – leading them to call his bluff.
The twin pressures of domestic economic fragility and international trade uncertainty are set to define the agenda in Westminster and the City of London in the weeks ahead.
