UK unemployment hits highest rate for nearly five years

Unemployment in the UK has risen to its highest level in almost five years, official figures show.

The Office for National Statistics (ONS) reported that the unemployment rate climbed to 5.2% in the three months to December 2025, up from 5.1% in November. Young people have been hit hardest: unemployment among those aged 16 to 24 reached 16.1%, the highest in more than a decade.

Wages continue to rise faster than prices, but pay growth is slowing. Many businesses have scaled back hiring, citing measures in Chancellor Rachel Reeves’s last two Budgets – including higher employer National Insurance contributions and a rise in the minimum wage – as adding to costs.

Work and Pensions Secretary Pat McFadden said the government is focused on tackling youth unemployment and making it easier for young people to find apprenticeships.

However, the Conservatives criticised Labour, blaming “an unprecedented series of monthly unemployment increases” on “economic incompetence.” Shadow Work and Pensions Secretary Helen Whately said young people were being hit hardest, with entry-level roles disappearing under Labour’s tax hikes.

Calls for VAT cut

Liberal Democrat Treasury Spokesperson Daisy Cooper called for an emergency VAT cut for the hospitality industry, one of the sectors hardest hit by job losses. Meanwhile, former health secretary Alan Milburn warned that young people face a “downward escalator” of poor health, education, and long-term reliance on benefits.

For graduates like Lucy Gabb, the struggle is personal. She completed a degree in French at Cambridge University in July 2025 and has since been seeking a job in publishing while working in a café in London. “Entry-level jobs are incredibly competitive, and many require experience that’s impossible to gain while studying,” she said. “I’ve applied for over 50 roles, and only one led to a face-to-face interview. The whole process can be really soul destroying.”

Job cuts

The retail and wholesale sector has seen the largest fall in payrolled workers, losing 65 000 jobs since January 2025. Health and social work, by contrast, added 39000 jobs over the same period, a shift partly attributed to workers moving between sectors, particularly women, according to financial analyst Danni Hewson. She also warned that growth in artificial intelligence could reduce entry-level opportunities for young people.

Average annual wage growth slowed to 4.2% in the three months to December, down from 4.4% in November. Some economists believe the slowdown could encourage the Bank of England to cut interest rates in March. Inflation currently stands at 3.4%, above the government’s 2% target. Paul Dales, chief UK economist at Capital Economics, said the weaker wage growth “supports the idea that the Bank of England has at least a couple more interest rate cuts in its locker.”

The reliability of ONS labour market data has been repeatedly questioned, including by the Bank of England.

Additional reporting by Hannah Mullane and Tommy Lumby