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

The unemployment rate rose marginally to 5.2% in December, undermining the picture of a labour market becoming more stable and resilient in anticipation of better conditions ahead as pre-Budget uncertainty has dissipated.

This comes as a slight surprise. Vacancy levels have been falling for a number of years and hiring activity has moderated, but the decline in job vacancies calmed in the last six months of 2025, even growing in some months.

The rate of increases in average earnings (excluding bonuses) fell to 4.2% in the three months to December, remaining strong by historical standards while continuing to ease from earlier highs. With inflation expected to fall over the next few months towards the Bank of England 2% target, this level of wage growth should mean that real household incomes will improve without risking feeding into price rises.

The labour market is not yet a strong catalyst for economic growth. This leads to the key question facing businesses and policymakers alike: will labour market stability return, translating into renewed confidence, investment and productivity growth?

Challenges persist, including skills shortages, weak productivity growth and external uncertainty. Whether a return to labour market stability can become the foundation for a stronger, more durable recovery now depends on confidence — and on whether businesses are willing to invest in the future rather than wait for the tide to turn.