The UK’s unemployment rate has risen to the highest level in nearly five years, reaching 5.2% in December, as per new official figures released by the Office for National Statistics (ONS). This increase marks a significant jump from the 4.1% rate recorded when Labour came into power in 2024, pledging economic growth.
The ONS data shows a surge in the number of people actively seeking employment, with the ratio of unemployed individuals per job vacancy hitting a new post-pandemic peak. Despite this, there has been minimal growth in job opportunities over recent months, while redundancies are on the rise.
A notable disparity in unemployment rates is observed among different age groups, particularly affecting those aged 18 to 24, whose unemployment rate has risen to 14% from 13.7%.
The ONS has advised caution in interpreting these figures, citing concerns about data reliability. The latest statistics coincide with a survey by the Chartered Institute of Personnel and Development (CIPD), revealing that over a third of employers are scaling back hiring due to new workers’ rights introduced by the Employment Rights Act. This legislation guarantees rights such as parental leave and sick pay from day one of employment, contributing to increased staffing costs alongside higher national insurance contributions for employers.
Economist Catherine Mann from the Bank of England highlights the impact of higher minimum wages on youth employment rates. Additionally, there is a noticeable gap in wage growth between the public and private sectors, with public sector annual earnings rising by 7.2% compared to 3.4% in the private sector, largely attributed to earlier pay raises in 2025.
The overall pay increase in the three months leading to December was 4.2%, a slight decline from the previous month’s figures. This deceleration in wage growth is welcomed news for the Bank of England as high wage inflation can fuel overall price increases, complicating efforts to curb inflation. Currently, interest rates remain at 3.75% as the Bank aims to stabilize inflation at 2%, with traders predicting an 81% chance of a rate cut in March, followed by another potential cut in September, reducing borrowing costs to 3.25%.
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