Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

For a party that prides itself on serving “working people”, Britain’s latest jobs numbers look grim for the Labour government. The jobless rate continued its upward trend, and reached a five-year high in the three months to December. The youth unemployment rate also hit its highest in over a decade. At 16.1 per cent, it is now above the EU average for the first time since records began in 2000. Global economic uncertainty, higher interest rates and the adoption of artificial intelligence have contributed to a cooling in job markets across the advanced world, but policy measures are adding insult to injury in the UK.

Britain’s job market was dimming before Labour came to power. But private sector hiring activity, tracked by the purchasing managers’ index, has been shrinking ever since the government’s decision to raise employers’ national insurance contributions in its first Budget in October 2024. At that fiscal event Labour continued the Conservatives’ policy of lifting the national minimum wage, but raised the statutory level for 18 to 20-year-olds by the most on record as part of a manifesto pledge to eventually create a single adult wage rate. Further minimum wage rises, announced in last November’s Budget, are due in April. Together, these measures have added to the mounting costs facing UK businesses.

In turn, over Labour’s term, there are 170,000 fewer people on payrolls. The losses have been concentrated in lower-paid roles in retail and hospitality — sectors that disproportionately employ younger workers, often at the statutory minimum. When costs rise, these jobs are often first to go. Hiring plans are also being curtailed by the coming minimum wage increases, new workers’ rights legislation and the subdued economic outlook.

The rise in joblessness further strains Britain’s sluggish growth rate. For younger workers, shrinking openings make it harder to gain experience. As it is, university leavers face stiff competition for graduate posts and there are mounting fears that AI will displace some entry-level work. An increasing number are open to moving abroad.

Inflation is projected to fall this year — which may give the Bank of England scope to cut rates and support activity. Indeed, annual private sector wage growth eased to 3.4 per cent in the latest quarter, bringing it closer to the 3.25 per cent rate that the central bank thinks is consistent with its inflation target. Either way, monetary policy cannot do the heavy lifting alone. The government must avoid layering more costs on business. Recent moves to soften and delay elements of its disruptive workers’ rights package make sense. Investing further in targeted retraining and apprenticeship opportunities would help too.

Ministers should also reconsider how the minimum wage is set. It is already among the highest in the developed world. After repeated U-turns, Labour is unlikely to reverse April’s planned increase. But any future rises should be better aligned with wider business costs and regional labour market conditions, where average wage rates tend to differ greatly. And, as in countries such as the Netherlands, maintaining a larger gap between youth and adult statutory rates would help more young people onto the jobs ladder.

Ultimately, the surest way to strengthen the labour market and improve young people’s prospects is to revive economic growth. There have been promising efforts to streamline planning and unlock capital. But the UK economy barely grew in the final quarter of 2025 and private sector confidence remains low. Lingering uncertainty over Prime Minister Sir Keir Starmer’s position will not help. When it comes to championing workers, Labour has been its own worst enemy.