Did the UK breach the Sahm Rule?

Yes. The UK breached the Sahm Rule in every month from June to September 2025.

But what exactly is the Sahm Rule? It was developed by Claudia Sahm, a former Federal Reserve economist who writes extensively on macroeconomics, labour markets, and economic data. It focuses on movements in the unemployment rate. Specifically, if the unemployment rate rises by more than 0.5 percentage points relative to its lowest level over the previous 12 months, this is considered a warning sign that the economy may be entering a recession.

There are two main ways to interpret or apply the Sahm Rule. In its original formulation, Sahm designed it as a trigger for early, discretionary fiscal policy [Sahm, 2019]. The idea was that once the national unemployment rate rises by 0.5 percentage points, the government should act quickly by providing fiscal stimulus, such as lump-sum transfers to households, to support consumption before a recession takes hold.

A second, more common use of the rule is as a forecasting tool for recessions. However, recent empirical evidence suggests that the Sahm Rule performs relatively poorly when used purely as a predictor of future recessions [Ash and Nickelsburg, 2024].

This may also apply in the UK context. For instance, the rule was violated in the months from June to September 2023, fully covering the third quarter. This was reflected in GDP data, which recorded growth rates of 0.1, 0.0, –0.2, and –0.3 per cent across the four quarters of 2023. In technical terms, 2023 was recessionary according to the standard definition of a recession as “two consecutive quarters of negative growth”. However, this episode did not develop into a major downturn.

	2022 Q1	2022 Q2	2022 Q3	2022 Q4	2023 Q1	2023 Q2	2023 Q3	2023 Q4	2024 Q1	2024 Q2	2024 Q3	2024 Q4	2025 Q1	2025 Q2	2025 Q3
GDP growth	1.0	0.6	0.1	0.3	0.1	0.0	-0.2	-0.3	0.8	0.6	0.2	0.3	0.7	0.2	0.1

The rule was breached again from May to September 2025, roughly corresponding to the second and third quarters of the year, when economic activity recorded growth rates of 0.2 and 0.1 per cent. This represented a deceleration towards a near-zero growth path, considering that statistical revisions could still push these figures into negative territory.

This pattern suggests that the Sahm Rule may not be a reliable indicator of economic recessions per se. However, it does capture the inverse relationship between unemployment and output growth (essentially the good old Okun’s law).

That is why, despite its limitations, a breach of the rule—beyond reflecting weak growth—signals a deterioration in labour-market conditions.

What Does the UK Labour Market Look Like at the End of 2025?

A brief end-of-year overview of the UK labour market points to the following key facts:

1. Unemployment has increased by about 0.8 percentage points compared with a year ago.

2. Most of the increase in unemployment is concentrated among younger age groups. From trough to peak, unemployment among those aged 18–24 nearly doubled, rising from just under 8 per cent to almost 14 per cent, with an increase in levels of around 259,000 individuals.

   

   The bars represent the unemployment rate by age group at the post-pandemic trough (May–July 2022) and the latest peak (August–October 2025) on the left-hand axis. The right-hand axis shows the absolute change, in thousands, from trough to peak. Source: ONS.

   A House of Commons report shows that the 16–24 age group has grown in overall size in recent years, which is positive from a demographic perspective. This expansion has drawn a similar number of individuals out of inactivity—around 250,000. Unfortunately, only about half of these (roughly 120,000) found employment, while around 128,000 flowed into unemployment, adding to the unemployed pool.

   
   

   Lastly, as pointed out by Money & Macro the UK seems quite exceptional in this youth unemployment trend compared to its peers.

3. Vacancies have been in a slow but steady multi-year decline from their post-pandemic peak, indicating that labour demand has been decelerating for some time.

4. Inactivity has fallen, which initially appears to be good news, as rising inactivity during the post-pandemic recovery was a major concern for policymakers. However, a decomposition of the peak-to-trough decline by reason shows that most of the reduction comes from students and individuals looking after family members. By contrast, the long-term sick—who saw the largest increase during the pandemic—have experienced only a marginal decline.
   

   

   Absolute change in inactivity by reason between April–June 2024 (near the peak of aggregate inactivity) and August–October 2025. Source: ONS.

5. Individuals transitioning out of inactivity appear to be struggling to find employment. Flow data suggest that unemployment has been on rise both because, fewer unemployed transition into employment, and more inactive are transitioning into unemployment. To some extent, this is a normal feature of labour-market dynamics, as transitions from inactivity to employment typically involve longer adjustment periods.
   

   

   The blue line represents the total change in unemployment according to the flow data. Negative values indicate a reduction in unemployment, while positive values indicate an increase. The green bars represent the net flow from inactivity; positive values imply that more inactive people are transitioning into unemployment than vice versa. The orange bars represent the net employment flow; negative values indicate that more unemployed individuals are transitioning into employment than vice versa. Source: ONS.

The UK may not be on the brink of an imminent recession, but the labour market is not looking great, and younger workers are paying the highest price.

References:

Ash, T. and Nickelsburg, J., 2024. Works like a Sahm: Recession indicators and the Sahm rule. Economics Letters, 242, p.111878.

Sahm, C., 2019. Direct stimulus payments to individuals. Recession ready: Fiscal policies to stabilize the American economy, pp.67-92..