UK unemployment hits highest rate for nearly five years

Official estimates show that unemployment in the UK increased to 5.2% in the three months to December 2025, the highest rate in five years (excluding the pandemic).

According to the Office for National Statistics (ONS) data released on 17 February 2026, the number of payrolled employees fell by 121,000 over the course of 2025. This rise in joblessness comes as businesses face significantly higher operating costs following the 2024 Autumn Budget, leading many to freeze recruitment or delay replacing staff.

📉 Key Labor Market Figures

The latest report highlights a cooling labor market as wage growth slows and vacancies remain stagnant:

Unemployment Rate: Rose to 5.2% (up from 5.1% in the previous quarter).
Youth Unemployment (16-24s): Remains a major concern at 15.9%, with over 700,000 young people currently out of work.
Wage Growth: Slowed to 4.2% for both regular and total pay, the lowest level since late 2021.
Vacancies: Estimated at 726,000, a slight quarterly increase of 2,000 but down by 73,000 compared to last year.

🏗️ Impact of Government Policy

Business analysts suggest that policies introduced in the October 2024 Budget have significantly impacted the hiring landscape:

National Insurance: The increase in employer National Insurance contributions (from 13.8% to 15%) and the lowering of the secondary threshold to £5,000 effective April 2025 have added to the "cost of employment."
Minimum Wage: A 4.1% rise in the National Living Wage (to £12.21) and a jump to £10.00 for 18-20 year olds arriving in April 2026 is reportedly causing firms to pause expansion plans.
AI Integration: Experts warn that some companies are accelerating their use of Artificial Intelligence to manage these rising costs, which may be permanently reducing the number of entry-level roles available for graduates.

🏛️ The "Benign Trend" for Inflation

In a separate release on 18 February 2026, the ONS confirmed that CPI inflation fell to 3.0% in January, down from 3.4% in December. This brings inflation back into the Bank of England's target range for the first time in 10 months.

Economic analysts believe the combination of rising unemployment and falling inflation will put pressure on the Bank of England to cut interest rates (currently at 3.75%) at their next meeting in March. Lower rates could help "kick-start" business confidence and support struggling sectors like retail and hospitality.

💬 "Soul-Destroying" Job Search

For graduates like Lucy Gabb, a Cambridge French graduate now working in a London café, the stats translate to a grueling reality. Despite applying for over 50 publishing roles, she has secured only one interview. "It’s soul-destroying," she says. "Entry-level jobs are so competitive, and they want experience that is impossible to get while you're actually studying."