The latest data from the ONS has shown that as of early 2026, unemployment within the UK is facing a five year high.
The current rate rose to 5.2 per cent in the final three months of 2025, increasing incrementally from 5.1 per cent in the previous quarter and, in turn, reaching its highest level since early 2021.
Whilst a number of factors caused the rise, the main culprit, according to ONS director of economic statistics, Liz McKeown, was continued a subdued employment market.
“The number of workers on payroll fell further in the final quarter of the year, reflecting weak hiring activity, although it is largely unchanged in the latest month. Over the same period the unemployment rate increased, with data showing that more people who were out of work are now actively looking for a job,” she noted.
In theory, this should ease one of retail’s most persistent problems of the past three years, being labour shortages. Instead, the data reveals a more complex picture. Retail is entering a period where labour availability is increasing at precisely the moment retailers feel least able to hire.
Wholesale and retail employment fell by 1.7 per cent in the year to December 2025, equating to around 72,000 fewer jobs in the industry. Vacancy levels are also falling, suggesting that businesses are not simply struggling to fill roles, but are in-fact actively reducing headcount altogether.
The combination of rising employer National Insurance contributions, higher minimum wage levels, and looming business rates increases is forcing retailers to prioritise cost control over expansion.
For many brands, it’s safe to say that labour remains the single largest expense line (around 15 to 20 per cent of total revenue). When margins are already thin, even modest increases in employment costs can fundamentally alter hiring decisions, and overall expansion strategies.
In short, as the ONS figure show, more people are looking for work, but fewer retail roles are being created to capitalise on this development.
A more complex ladder for candidates
Retail has historically acted as one of the UK’s most accessible employment sectors, particularly for younger workers, part-time employees, and those returning to the workforce after periods of inactivity. Flexible hours and lower barriers to entry made it a natural bridge into employment.
Nearly one million young people are not in education, employment or training, a sharp increase from pre-pandemic levels, yet retail’s capacity to absorb new entrants is shrinking. Store closures, reduced opening hours, and operational efficiencies driven by technology mean fewer entry-level roles exist than a decade ago.
This is one reason why industry leaders, including Tesco’s UK chief executive Ashwin Prasad, have warned that the UK risks allowing economic inactivity to become entrenched. But the retail industry itself is expected to help solve employment challenges, while simultaneously managing rising costs that discourage hiring.
Store closures and labour market feedback loops
The ongoing wave of store closures across fashion, charity retail, banking, and hospitality is also reshaping local labour markets.
High streets traditionally provided large numbers of geographically accessible jobs. As footfall remains 15 to 20 per cent below pre-pandemic levels and online sales stabilise at around 28 per cent of total retail spend, physical store networks are being rationalised.
Each closure removes not only jobs but also local employment infrastructure, particularly in towns outside major cities.
Fewer stores lead to fewer local jobs, which reduce footfall and spending power, which then accelerates further closures.
The bigger question for government and industry
The current labour market data highlights a growing concern for the UK’s unemployed. The UK needs sectors capable of absorbing large numbers of workers, particularly younger people and those re-entering employment.
Retail has historically fulfilled that role better than almost any other industry.
But without meaningful relief on cost pressures or structural reform to business rates and employment taxation, the sector’s ability to continue doing so is diminishing.
The risk is the gradual erosion of one of the country’s most important employment pathways, at precisely the moment the economy needs it most.
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