UK Unemployment Rises to Five-Year High of 5.2% as Wage Growth Cools
The UK’s unemployment rate has climbed to 5.2% in the three months to December, marking the highest level in nearly five years, according to the Office for National Statistics (ONS). This increase coincides with a slowdown in wage growth, raising the possibility of potential interest rate cuts by the Bank of England later this year.
Unemployment Rate Details
The unemployment rate increased from 5.1% in the three months to November. This figure represents the highest rate since the quarter ending January 2021. The rise in unemployment comes as businesses adjust to higher costs and slower economic growth, leading to reduced hiring.
Wage Growth Slowdown
Annual wage growth has also decelerated, reaching its lowest level in almost four years. Wages excluding bonuses increased by 4.2% in the three months to December, down from 4.4% in the previous month. Private sector pay rose by 3.4%, the lowest increase in five years, while public sector wages saw a rise of 7.2%. Adjusted for inflation, real pay growth was just 0.8% between October and December, the lowest rate since August 2023.
Impact on the Jobs Market
The number of people on company payrolls continues to decline, falling by 134,000 compared to a year ago and by 46,000 over the quarter. In January alone, payrolls decreased by 11,000.
Political and Economic Context
The increase in unemployment has drawn criticism from political parties. The Conservatives have blamed Labour’s economic policies, citing increased employer National Insurance contributions and a rise in the minimum wage as factors contributing to the slowdown in hiring. Labour has pointed to the difficulties faced by young people entering the job market, with entry-level positions becoming increasingly competitive.
Personal Stories
Recent graduates are facing significant challenges in securing employment. Lucy Gabb, a Cambridge University graduate with a degree in French, has been applying for publishing jobs since July 2025 but finds entry-level positions highly competitive and often requiring experience unattainable during studies. She currently works in a café while continuing her job search, having applied for over 50 roles.
Future Outlook
Despite the recent rise in unemployment, some business surveys suggest the jobs market may be improving, with companies renewing recruitment plans. Still, the ONS figures and the slowdown in wage growth raise questions about the strength of the economic recovery and increase the likelihood of interest rate cuts by the Bank of England in the spring. The Guardian reports that economists were expecting the 5.2% unemployment rate.
Key Takeaways
- The UK unemployment rate has risen to 5.2%, the highest in nearly five years.
- Wage growth is slowing, with real pay growth at its lowest level since August 2023.
- The number of people on company payrolls is decreasing.
- Young people are disproportionately affected by the rising unemployment rate.
- The Bank of England may consider interest rate cuts in response to these economic indicators.
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