Economy Stats Advisor

The punchline: the Isle of Man does not have an unemployment problem - it has a capacity problem, and housing is now the binding constraint on growth

Ministers need to stop congratulating themselves on low unemployment and start dealing with what the numbers actually say. Unemployment at 260 in December 2025 is back down to the same level as September 2024 and far below the January 2025 spike of 370. That matters because it confirms the labour market is still exceptionally tight. But the more important point is this: employment has gone broadly sideways for two years, vacancies remain very high, work permits have risen again, and house prices have climbed to £358.3k while transactions have fallen to 917. In plain English, the island is trying to grow without enough workers and without enough homes for the workers it needs.

That is not a cyclical wobble. It is a structural brake. If government does not act, the likely outcome by mid-2026 is slower private-sector growth, more wage pressure in frontline sectors, continued recruitment from off-island without adequate housing supply, and a sharper split between high-income households and everyone else. The headlines about food insecurity, debt stress and first-time buyer rule changes are not side stories. They are the social consequences of an economy running close to full capacity while housing and public services lag behind.

The labour market is still too tight for comfort, even if the headline looks stable

The unemployment trend tells one story: the island remains near full employment. After peaking at 370 in January 2025, unemployment fell steadily to 260 by December. That is a drop of nearly 30 percent over the year. On the surface, that looks strong.

But the vacancy data tells the more important story. In Q3 2025 there were 1,117 full-time vacancies and 820 part-time vacancies - 1,937 roles in total. That means there were roughly seven and a half vacancies for every registered unemployed person by year-end. No serious policymaker should look at that ratio and think the labour market is loose. It is not. It is stretched.

Employment itself is not accelerating. Persons employed were 36,643 in Q4 2025, slightly below Q4 2024 at 36,863. Jobs undertaken were 53,424, also below the 54,186 a year earlier. Self-employment has drifted down from 8,132 in Q1 2023 to 7,767 in Q4 2025. So the island is not adding labour capacity domestically at any meaningful pace.

That is why work permits matter. New permits fell through much of 2025, then jumped to 501 in Q3 from 318 in Q2. Employers are telling government, through behaviour not press release, that they cannot fill roles locally. The island is already importing labour to compensate for domestic constraints.

Policy implication: stop treating work permits as a side mechanism. They are now part of economic strategy. But importing labour without importing housing supply is a recipe for higher rents, longer commutes, and political backlash.

The official growth story is weaker than the headlines suggest

The island still has plenty of positive messaging around tourism, events and external profile. Some of that is real. But the hard data is more mixed than the mood music.

Private sector jobs stand at 37,152, yet several core sectors are shrinking year-on-year. Retail distribution, still the largest private employer at 4,621, is down 3.9 percent. Other finance and business services are down 3.6 percent. Insurance is down 1.7 percent. Banking is down 2.2 percent. Corporate service providers are down 8.1 percent. ICT is down 5.9 percent. Transport and communications are down a very sharp 14.0 percent. Tourist accommodation is down 8.7 percent. Most strikingly, eGaming employment is down 26.0 percent to 618.

That last figure should set alarm bells ringing. eGaming remains a major contributor to national income even if direct employment is relatively modest. A 26 percent fall in jobs does not automatically mean the sector is collapsing, but it does suggest consolidation, automation, relocation of functions, or regulatory and cost pressures. Government should not assume this sector will carry on expanding by inertia.

There are bright spots. Miscellaneous services are up 8.9 percent, medical and health services up 8.1 percent, food and drink manufacturing up 12.8 percent, and agriculture up 3.4 percent. But these gains do not erase the broad softness across parts of finance, digital, transport and visitor accommodation.

This is where official narratives can mislead. Low unemployment can coexist with weak sectoral dynamism. If firms are hoarding labour, struggling to recruit, or operating below potential because of housing and skills shortages, the labour market can look strong while the economy becomes less productive and less competitive.

Housing is now the main economic bottleneck, not just a social issue

This is the point ministers most need to hear. Average property prices rose from £342.9k in Q4 2024 to £358.3k in Q4 2025 - an annual increase of about 4.5 percent. At the same time, land transactions fell from 1,184 to 917 - down roughly 22.6 percent. Prices are rising while market activity is falling.

That combination usually means affordability is worsening and supply is constrained. It is not a healthy boom. It is a rationed market.

The Bank of England rate fell from 4.25 percent in July 2025 to 3.75 percent in December. That should have offered some relief to mortgage affordability at the margin. Instead, prices still climbed and transactions still fell. That tells you the problem is not mainly interest rates any more. It is stock, planning, build-out speed and the mismatch between local earnings and housing costs.

The easing of first-time buyer rules from five years' residency to three is politically understandable, but economically it is only a demand-side patch. It may help some households into ownership, but if supply does not rise it risks pushing more people into competition for too few homes. In a market this tight, subsidies and eligibility changes alone can simply capitalise into higher prices.

The wider news flow reinforces the point. Foodbank demand is rising, debt warnings are intensifying, and energy affordability remains politically sensitive. That is exactly what you would expect when housing absorbs too much household income. The island cannot build a sustainable population strategy on the assumption that people will tolerate permanently stretched living costs.

Inflation has stopped improving - and that matters for household stress

Inflation is no longer falling. CPI rose from 2.6 percent in Q2 2025 to 2.9 percent in Q3 and 3.3 percent in Q4. RPI rose even faster, from 2.0 percent in Q2 to 2.7 percent in Q3 and 3.6 percent in Q4. That matters because RPI often tracks the lived experience of households more closely, especially where housing-related and everyday costs bite.

Global conditions should have helped more. Oil fell from $72.53 in July to $60.85 in December. The Bank of England cut rates. Sterling was reasonably firm against the dollar. The FTSE rose strongly to 9,931 by December, signalling resilient financial market conditions. In other words, the external backdrop was not especially hostile by year-end.

So why is island inflation re-accelerating? The likely answer is domestic cost pressure - labour scarcity, housing costs, service-sector pricing, and local supply constraints. Imported inflation has eased; home-grown inflation has not. That is a warning sign for a small island economy operating near capacity.

The VAT cut on electricity bills will help a bit, and lower oil prices should feed through over time. But ministers should not kid themselves that this solves the cost-of-living problem. If rents, mortgages, childcare, transport friction and food costs remain elevated, households will still feel poorer even with low headline unemployment.

The sector picture is clear: health, food production and local services are growing; finance, digital and transport are under pressure

Government needs to be more selective and more hard-headed about sector strategy.

• Health and care: Medical and health services employment is up 8.1 percent to 2,870. Demand is clearly rising, driven by demographics and service need. But leadership churn at Manx Care and continuing restoration issues mean the sector is growing under strain, not through stable reform.
• Food and drink manufacturing: Up 12.8 percent to 766. This is one of the clearest growth pockets and fits the island's resilience agenda. It deserves practical support on premises, energy reliability and logistics.
• Miscellaneous services: Up 8.9 percent to 3,405. This likely reflects broad local service demand, but it is also a catch-all category. Government should interrogate what is actually driving it before declaring victory.
• Construction: Up only 0.5 percent to 3,310 despite the obvious need for more housing and infrastructure. That is not enough. The island needs more output here, not just more firms on paper.
• Finance and business services: Still large, but several components are shrinking. Banking, insurance, other finance and corporate service providers are all down. For an economy so dependent on financial services, this should worry Treasury.
• ICT and eGaming: Both down materially. That is a strategic warning. These are exactly the sectors the island relies on for high-value activity and international relevance.
• Transport and tourism accommodation: Both down sharply. That sits awkwardly beside upbeat tourism headlines. Strong visitor numbers do not automatically mean a healthy visitor economy if accommodation capacity and transport-side employment are weakening.

The employer base also shows how fragmented the economy is. Most employers are small. In construction, miscellaneous services, professional services and agriculture, the overwhelming majority are small firms. That means policy needs to focus less on grand announcements and more on execution - planning speed, recruitment pipelines, premises, transport reliability and cashflow conditions for SMEs.

Politics is becoming a risk to economic delivery

The pre-election atmosphere matters. The censure row, ministerial retirement, and general election manoeuvring all point to a government machine drifting into political transition. That is dangerous when the island needs difficult decisions on housing, infrastructure, migration and public service reform.

There is a real risk that ministers spend the next few months managing headlines rather than solving constraints. Housing tweaks are easier than planning reform. Work permit announcements are easier than workforce strategy. Energy ambition is easier than delivery, as the wind project delays and billing issues show.

If this drift continues into the next administration, the island will lose another year while structural pressures intensify. By then, lower UK rates may have boosted housing demand further, without fixing supply. That would make affordability worse, not better.

What government should do now

1. Launch an emergency housing supply package focused on delivery, not subsidy.
   The numbers justify it. Prices are up 4.5 percent year-on-year and transactions are down 22.6 percent. That is a dysfunctional market. Government should fast-track medium-density schemes in existing settlements, impose build-out expectations on consented sites, expand infrastructure support where it unlocks homes quickly, and publish a quarterly housing delivery dashboard. First-time buyer support should be retained, but only alongside a supply plan. Demand-side help without supply is inflationary.
2. Tie migration policy directly to housing and sector need.
   With 1,937 vacancies against 260 unemployed, the island needs inward labour. But permits should be prioritised for health, construction, hospitality, transport and strategically important digital roles, with employer obligations around accommodation planning where appropriate. A labour-import model without housing coordination will simply intensify rent inflation and local resentment.
3. Stop assuming finance and eGaming will look after themselves - intervene to protect high-value sectors.
   eGaming employment is down 26 percent. ICT is down 5.9 percent. Corporate service providers are down 8.1 percent. Government should convene an immediate competitiveness review covering regulation, skills, office space, connectivity, and the practical reasons firms are shrinking headcount. The aim is not subsidy for its own sake. It is to stop quiet erosion in sectors that underpin the tax base and external earnings.

Bottom line

The Isle of Man economy is not weak, but it is constrained - and constrained economies can go backwards quickly if policymakers misread the signals. The headline unemployment figure looks excellent. The underlying picture is less comfortable: flat employment, high vacancies, rising dependence on imported labour, re-accelerating inflation, falling transactions, rising house prices, and visible stress among lower-income households.

If ministers want one sentence to take away, it is this: the island's growth model is now colliding with its housing and workforce limits. Solve those, and the economy can keep expanding. Ignore them, and by the next quarter the same low-unemployment headline will be masking a more brittle, more unequal and less competitive economy.