UK labour market: Food industry impact

The latest ONS labour market release (February 2026) shows a further weakening of the UK labour market, continuing a well-established trend. Key points include:

• Unemployment is rising - The unemployment rate rose to 5.2% in October–December 2025, up from 4.4% a year earlier. This represents around 1.84 million people unemployed, an increase of roughly 280,000 over the year. Youth unemployment (16-24 year olds) has risen to 16.1%. This is the highest youth unemployment rate in around a decade and it is high by international standards.

• Employment is falling - PAYE payroll data shows the number of payrolled employees fell by 121,000 over the year to December 2025 and a further 134,000 in early estimates for January 2026. Workforce jobs data also signals contraction, suggesting genuine cooling in labour demand, reflecting wider economic challenges.

• Economic inactivity has stabilised but remains high - Around 9.02 million people aged 16–64 are economically inactive (20.8%). This is lower than last year, but still significantly above pre‑pandemic levels. The improvement is mainly due to more people moving back into job‑seeking rather than stronger job creation. Vacancies continue to fall.

• Vacancies dropped to 734,000, below pre‑pandemic levels, signalling businesses are slowing hiring intentions.

• Wage growth is slowing - Annual pay growth has softened, with pay increases now barely exceeding inflation. Business surveys suggest that wage growth is expected to cool further through 2026. Bank of England Decision Maker Panel data earlier in the autumn also indicated falling expectations for future wage growth.

Taken together, the data shows a labour market that is loosening, but not collapsing. Conditions are moving away from the extreme tightness seen during the post‑pandemic recovery and towards a more balanced—and weaker—position.

A mixed picture for employers

The food industry is one of the most labour‑intensive sectors in the UK economy. Years of labour shortages, rising wage bills, high staff turnover and reliance on overseas labour have challenged the sector’s resilience.

The new data suggests pressure is easing, but not equally across the system.

Short‑term relief: recruitment could become easier

• Rising unemployment means a larger pool of available workers, particularly for entry‑level and lower‑skilled roles common in food manufacturing, warehousing and retail.

• Falling vacancies across the economy may reduce competition for talent, helping businesses fill roles that were previously difficult to recruit into.

But structural challenges remain. Despite short‑term easing, deep‑rooted issues persist:

Productivity growth in the food chain remains low. IGD analysis has highlighted weak productivity in parts of the food system, particularly in horticulture and segments of livestock production. Improving productivity is essential to ensure the UK can feed itself sustainably.

Wage pressures are softening but remain above historical norms.

• Although wage growth is slowing, the National Living Wage uplift in April 2025 continues to feed through, keeping labour costs elevated.

• Energy, logistics and regulatory cost pressures compound this, limiting headroom for businesses already operating on low margins.

The challenge of skills is not easing. Demand remains high for:

• HGV drivers

• Engineers and technicians

• Food safety and quality specialists

• Digital, data and automation roles

These shortages are structural and unlikely to be relieved by cyclical labour market changes.

Rising unemployment can weaken consumer demand.

A softer labour market often means weaker household confidence. For food retail, this translates to:

• Trading down

• More price sensitivity

• Slower volume recovery

• Demand shifting toward value formats

Away from home may feel this even more acutely, particularly mid‑market casual dining.

Vulnerable households face higher risk - As unemployment rises, more households move into financial instability, increasing demand for:

• Value ranges

• Emergency food support

• Cheaper calorie sources (which can run counter to health goals)

IGD opinion  

The latest data points to an economy that is struggling for momentum.

• Business employment intentions, across CIPD surveys and Bank of England data are declining, even though they remain slightly positive in the private sector.

• Employers increasingly expect weaker wage growth, signalling caution about 2026 trading conditions.

• With the labour market loosening, people who lose or leave their jobs may find it harder to re‑enter work, raising vulnerability in parts of the population.

From an economic resilience perspective, this means the food industry should prepare for:

• Higher recruitment availability, but

• Weaker consumer spending,

• Continued skills gaps, and

• Sluggish productivity growth.

What IGD is doing: IGD Future Workforce Programme

IGD’s Future Workforce programme is designed to address precisely the challenges highlighted in the labour market data.

IGD is focusing on three strategic priorities:

1. Attract: Deliver meaningful career interventions for young people from schools, colleges and universities to increase awareness and attraction opportunities.

2. Develop: Focus on strengthening the learning culture within the food industry to improve the talent pipeline and support people to develop their skills.

3. Thrive: Creating workplaces where everyone thrives; ensuring all groups are represented in the food sector.

 

For more information or to understand how your organisation can get involved, please contact:

Harshal Gore, Director of Economic & Workforce Programmes

[email protected]