UK unemployment reaches post-pandemic high

MANCHESTER, England (CN) — Unemployment in the U.K. has climbed to its highest level in nearly five years, underlining a steady cooling in the labor market as higher costs and weak growth weigh on hiring.

The Office for National Statistics said Tuesday that the unemployment rate rose to 5.2% in the three months to the end of December, up from 5.1% in the previous quarter and the highest since early 2021.

The increase was in line with economists’ expectations and continues a trend that began in 2022, as companies have grown more cautious about taking on staff.

Businesses say higher payroll costs have played a key role. 

In recent budgets, Chancellor of the Exchequer Rachel Reeves increased national insurance contributions (a payroll tax) and raised the minimum wage — measures firms argue have made hiring more expensive.

Pay growth is also slowing. 

Private sector wages rose by 3.4%, the weakest pace in five years, while public sector pay grew by 7.2%. Adjusted for inflation, annual earnings excluding bonuses rose by just 0.8% in the final quarter of the year.

The figures strengthen the case for an interest rate cut by the Bank of England, which held its main rate at 3.75% earlier this month. 

The central bank has also forecast that unemployment will rise to 5.3% this year and that wage growth will ease further as inflation cools.

Although Parliament is in recess until Feb. 23, there has been some political reaction.

Work and Pensions Secretary Pat McFadden said there were now 381,000 more people in work than at the start of 2025, but admits that there was “more to do.”

Opposition Conservative leader Kemi Badenoch said the government was “killing jobs, killing growth and killing hope for the next generation.”

Danni Hewson, head of financial analysis at AJ Bell, said the data showed “the weakness in the labour market that’s led to the number of people out of work per vacancy hitting a fresh post-pandemic high.”

In a press release, she added that companies had been “crystal clear” that rising labor costs had pushed them to pause recruitment, while advances in artificial intelligence are further reshaping hiring in the years ahead. 

“For young people in particular, already struggling to get their first taste of work, AI could result in a scarcity of entry-level posts,” she said.

Youth unemployment concerns

The slowdown is hitting young people hardest.

Among 16- to 24-year-olds, unemployment rose to 16.1% at the end of last year, the highest level in more than a decade, excluding the pandemic period.

Economists say many young people want work but are struggling to find it as companies hesitate to recruit and technology replaces entry-level roles.

Research by the job search site Adzuna found vacancies for graduate jobs, apprenticeships, internships and junior roles fell 32% since the launch of ChatGPT. 

Entry-level jobs now account for 25% of the market, down from nearly 29% two years earlier.

The drop coincides with the rapid adoption of artificial intelligence. 

Companies are increasingly using AI to boost productivity and reduce staff numbers. 

In June 2025, BT chief executive Allison Kirkby said the technology could lead to deeper job cuts at the telecoms group, which previously announced plans to shed up to 55,000 workers.

Dario Amodei, chief executive of AI firm Anthropic, has warned the technology could wipe out half of all entry-level office jobs in the next five years.

Beyond unemployment, there is also concern about youth economic inactivity, defined as people who are not in work and not actively seeking jobs. This number is currently just below 1 million young people.

This group includes students and those with long-term health problems, but economists warn prolonged periods outside the labor market can make it harder to find work later on in life.

In January 2026, a parliamentary committee launched a new inquiry into tackling the high rate of young people not in work, education or training.

Courthouse News reporter James Francis Whitehead is based in England.

Follow @jayfranklinlive