UK unemployment hits five-year high at 5.2%

The UK unemployment rate has climbed to 5.2%, its highest level since early 2021, according to the latest labour market data from the Office for National Statistics.

The rate increased in the three months to December 2025, up from 5.1% in the previous rolling quarter, with the number of unemployed people rising to approximately 1.88m. Payroll employment declined both year-on-year and quarter-on-quarter, reflecting a continued easing of labour demand across multiple sectors.

Regular pay growth, excluding bonuses, slowed to 4.2%, marking the weakest pace of private-sector wage growth in five years. After adjusting for inflation, real wage growth stood at around 0.8%, indicating limited improvement in household purchasing power.

The Office for National Statistics also reported that the ratio of unemployed people per vacancy has risen to its highest level since the pandemic recovery began, signalling a shift away from the tight labour conditions that characterised much of 2022 and 2023.

Wage pressures and youth employment —

The data arrives amid a broader policy debate over labour costs and hiring incentives. On Sunday, Bank of England Monetary Policy Committee member Catherine Mann said increases in the UK’s minimum wage may be contributing to rising youth unemployment.

Mann said that higher statutory pay floors can affect employers’ decisions when recruiting younger or less experienced workers, particularly during periods of slower economic growth. Her comments followed government confirmation of further increases to the National Living Wage.

While the overall unemployment rate covers all age groups, youth unemployment has shown more pronounced volatility in recent quarters. Employers in retail, hospitality, and entry-level service roles have reported tighter margins and increased wage bills, coinciding with softer consumer demand.

Economists remain divided on the extent to which minimum wage policy is directly influencing hiring patterns. Some argue that broader economic weakness — including subdued GDP growth and cautious business investment — is a more significant driver of labour market slack.

The UK economy expanded by just 0.1% in the final quarter of 2025, underscoring a fragile growth environment. Business surveys have pointed to restrained recruitment plans heading into early 2026, with companies citing cost pressures, regulatory change, and demand uncertainty.

Monetary policy implications —

For the Bank of England, the latest data presents a mixed picture. Slower wage growth may ease inflationary pressures, potentially strengthening the case for interest rate adjustments later this year. However, rising unemployment reflects weakening economic momentum.

The Bank Rate currently stands at 3.75%. Markets are closely watching labour market indicators as a gauge of domestic inflation persistence and underlying demand conditions.

For businesses, a softening jobs market may moderate wage competition but also signals slower consumer spending potential. For policymakers, the balance between supporting employment and maintaining income growth remains closely calibrated as 2026 unfolds.