Long-Term Sickness And Youth Inactivity Are Undermining The U.K. Labor Market

The U.K. is grappling with a worsening economic challenge due to sluggish growth and a declining workforce, Bank of England Governor Andrew Bailey warned over the weekend. 

Speaking at the Jackson Hole summit of global policymakers, Bailey pointed to a drop in labor force participation since the pandemic — especially among young people and the long-term sick — as a major threat to Britain’s future economic health.

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By 2040, 40% of the U.K.’s population will be over the age of 64, further tightening the labor market, according to The Guardian. 

Unlike other advanced economies, the U.K. has failed to rebound to pre-pandemic workforce levels. Recent data shows 21% of Britons aged 16 to 64 are not working or actively seeking work — down from last year’s peak but still above pre-2020 levels. 

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Mental health was cited as the leading cause of inactivity.

While Bailey acknowledged potential flaws in the data — such as low survey response rates — he stressed that these don’t fully explain the decline. 

The Bank has shifted its focus from unemployment to labor force participation, as concerns mount that worker shortages may keep inflation stubbornly high. In July, the U.K. had the highest inflation rate among G7 nations at 3.8%, well above the Bank’s 2% target.

Meanwhile, the U.K. economy showed modest growth of 0.3% in the second quarter of 2025, down from 0.7% in the first quarter, but still outperforming economist expectations. 

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The weaker reading adds pressure on Chancellor Rachel Reeves as she prepares her autumn budget, with tough decisions ahead on boosting productivity and raising government revenues.

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