Tuesday’s labour market data confirms what many small businesses are already feeling on the ground – the UK’s hiring engine is losing momentum.

Fresh figures from the Office for National Statistics show a labour market that’s cooling and becoming harder to navigate. While changes may appear modest, the direction of travel is clear: Hiring is slowing, vacancies aren’t recovering, and small and medium-sized enterprises are feeling the impact.

As the UK approaches 2026, the challenge for employers isn’t just finding talent – it’s deciding when and how hiring makes sense. 

A Labour Market Losing Pace

The latest ONS data shows further signs that the UK labour market is softening. The employment rate for people aged 16-64 fell 0.3% to 74.9% in the three months to August-October 2025, continuing a slight but gradual decline seen over the past year.

Vacancy figures reinforce that slowdown. The estimated number of job vacancies stood at 729,000 in the three months to September-November 2025, with a small decrease of 2,000 vacancies (0.2%), indicating that a modest rise seen earlier in the autumn hasn’t been sustained.

Between falling employment and flat vacancy numbers, the figures point to a labour market that’s tightening rather than rebounding. For employers, that means more caution. For jobseekers, it means fewer new roles coming to market.

What SME Data Is Showing

That caution is even clearer in real-time data from Employment Hero, which tracks employment trends across thousands of UK businesses. The numbers show employment growth slowing significantly on a year-on-year basis, falling from 7.6% in November 2024 to just 2.0% in November 2025.

Real-time SME data suggests the slowdown in hiring decisions is already well embedded. Commenting on the figures, Kevin Fitzgerald, UK Managing Director at Employment Hero, said Tuesday’s ONS release is “the latest demonstration of the UK’s tightening labour market,” noting that the decline in the employment rate closely mirrors what Employment Hero is seeing across SMEs.

Employment Hero’s recent survey found that 42% of UK workers searched for a new job in 2025, pointing to a workforce that’s open to change but struggling to find viable opportunities.

With vacancies failing to recover, many employees feel stuck – willing to move, but unable to find the right role. That mismatch risks slowing progression and productivity if it persists into the new year.

Fitzgerald adds that this “lack of opportunities, combined with the continued rise in inflation, is putting pressure on employers who are also contending with rising costs, such as last month’s minimum wage increase.

“Looking forward, our data shows that smaller businesses are more susceptible to economic changes, so creating favourable conditions to encourage further hiring will be crucial to unlocking the full potential of the labour market.”

Confidence, Not Capability, Is The Constraint

For many smaller businesses, the slowdown isn’t about a lack of ambition. It’s about confidence. Inflation remains elevated, costs are still rising, and recent increases in the minimum wage have added pressure to payrolls that were already stretched.

Hiring hasn’t stopped, but it’s become more selective. Roles are being delayed, reshaped, or paused altogether. In that environment, every new hire feels like a bigger risk.

Policy Support Will Matter In 2026

As the UK moves into 2026, Government initiatives aimed at boosting participation and skills will matter more than ever. Programmes such as the Youth Guarantee, expanded apprenticeships, and skills-focused funding are designed to support hiring – particularly among younger workers and entry-level roles.

For SMEs, the effectiveness of these schemes will depend on how accessible and practical they are. Smaller businesses tend to respond quickly to incentives, but only when they’re clear, predictable, and aligned with commercial reality.

The Pressure Point For SMEs

The comparison between ONS data and Employment Hero’s real-time insights highlights a clear risk. By the time hiring slowdowns fully show up in headline statistics, SMEs may already have pulled back.

Smaller businesses are more exposed to economic shifts and tend to adjust faster. Supporting confidence in the SME sector will be critical if hiring momentum is to recover in the year ahead.

For now, the message from both data sets is consistent. The UK labour market is tightening, hiring growth is slowing, and SMEs are at the sharp end of that change. Whether momentum returns in 2026 will depend on restoring confidence – and giving smaller employers the conditions they need to hire again.