Unemployment hits highest rate in nearly five years

UK Unemployment Rises to Five-Year High as Hiring Slows

Tuesday 17 February 2026 | 08:38 | Uk

The UK unemployment rate has climbed to its highest level in nearly five years, as redundancies increase and competition for jobs intensifies.

New figures from the Office for National Statistics (ONS) show the jobless rate rose to 5.2% in December, the highest level since the three months to January 2021.

The rate had stood at 4.1% when the Labour Party took office in 2024, having pledged to prioritise economic growth.

More Competition for Jobs

According to the ONS, more people are actively looking for work, while the number of unemployed people per vacancy has reached a new post-pandemic high.

Although job vacancies have shown little change in recent months, redundancies are rising — suggesting employers are becoming more cautious.

Young people have been particularly affected. Unemployment among those aged 18 to 24 rose to 14%, up from 13.7%.

The ONS has urged caution in interpreting monthly movements in unemployment and vacancy figures due to ongoing concerns about survey reliability.

Why Is Unemployment Increasing?

A survey by the Chartered Institute of Personnel and Development (CIPD) found more than a third of employers are cutting hiring in response to new employment legislation and rising staffing costs.

The Employment Rights Act, which became law in December, guarantees workers rights such as parental leave and sick pay from day one of employment.

Employers are also facing higher costs following the rise in national insurance contributions introduced in April.

Catherine Mann, an interest rate-setter at the Bank of England, suggested at the weekend that higher minimum wages for younger workers may have contributed to the increase in youth unemployment.

Wage Growth Slows

There has been a slowdown in pay growth overall:

• Public sector earnings rose 7.2% annually

• Private sector earnings rose 3.4%

• Overall average pay growth eased to 4.2% in the three months to December, down from 4.4% previously

The stronger public sector growth partly reflects pay awards being implemented earlier in 2025 compared with 2024.

What It Means for Interest Rates

Slower wage growth may ease pressure on the Bank of England as it works to bring inflation back to its 2% target.

Interest rates currently stand at 3.75%, having been kept elevated to control price rises.

Financial markets are now pricing in an 81% chance of a rate cut in March, as weaker wage growth and rising unemployment reduce inflationary pressure.

For jobseekers, however, the outlook is becoming more challenging, with increased competition for roles and employers scaling back recruitment.