The UK unemployment rate rose to 5.2% in the three months to December 2025, reaching its highest level in nearly five years, according to data released by the Office for National Statistics (ONS). The increase is particularly pronounced among young people, with 16.1% of those aged 16 to 24 currently unemployed – the highest figure in over a decade.
The latest figures represent an uptick from the 5.1% unemployment rate recorded in the three months to November. This rise aligns with expectations following changes to employment law implemented in December, which have increased costs for employers. The current rate marks the highest level of unemployment since the period between November 2020 and January 2021, coinciding with the height of the COVID-19 pandemic and widespread economic disruption. Excluding the pandemic period, What we have is the highest unemployment rate since the three months ending October 2015.
Youth Unemployment a Key Concern
The disproportionate impact on younger workers is a significant concern. Unemployment among those aged 18 to 24 reached 14% in the last three months of 2025. This represents a substantial increase since the Labour Party took office in July 2024, when the national unemployment rate stood at 4.1%.
Alongside the rising unemployment figures, wage growth is also slowing. Annual pay growth in the three months to December 2025 was 4.2%, the lowest level in almost four years. However, real wage growth – adjusted for inflation – was only 0.8% during the same period, indicating that earnings are not keeping pace with the cost of living.
Businesses have pointed to recent policy decisions as contributing factors to the challenging employment landscape. Specifically, increases in employer National Insurance contributions and the minimum wage, implemented as part of Chancellor Rachel Reeves’s recent budgets, are cited as increasing operating costs and leading to slower hiring.
Political Reactions and Policy Responses
Work and Pensions Secretary Pat McFadden acknowledged the figures, noting that there are 381,000 more people in work since the start of 2025, but emphasized that “more to do” remains to address unemployment. He highlighted the government’s focus on tackling youth unemployment and facilitating access to apprenticeships.
However, the Conservative party has been critical of the Labour government’s economic policies, accusing them of overseeing “an unprecedented series of monthly unemployment increases” and attributing the rise to “bad decisions and economic incompetence.” Shadow work and pensions secretary Helen Whately argued that Labour’s tax hikes are making it more expensive and risky for businesses to hire, particularly impacting entry-level positions.
Liberal Democrat Treasury Spokesperson Daisy Cooper has called for an emergency VAT cut for the hospitality industry, which is experiencing significant job losses. Meanwhile, former health secretary Alan Milburn has warned of a “downward escalator” for young people, citing issues with health, education and a growing reliance on the benefit system.
Wage Growth and Interest Rate Implications
The slowdown in wage growth, coupled with the rising unemployment rate, is raising expectations that the Bank of England may consider further cuts to interest rates in the spring. Recent business surveys have indicated some improvement in the jobs market, with companies renewing recruitment plans, but the ONS data suggests that these positive signals have yet to translate into a significant reduction in unemployment.
The combination of weakening labor market data and cooling wage growth presents a complex challenge for policymakers. While lower interest rates could stimulate economic activity and encourage hiring, they also risk exacerbating inflationary pressures. The Bank of England will need to carefully weigh these competing considerations when making its next monetary policy decision.
The current economic climate is particularly challenging for young people entering the workforce. The high unemployment rate among 18- to 24-year-olds raises concerns about long-term scarring effects, as prolonged periods of unemployment can hinder career progression and reduce lifetime earnings. Addressing this issue will require a concerted effort from the government, businesses, and educational institutions to provide young people with the skills and opportunities they need to succeed.
The ONS data underscores the fragility of the UK’s economic recovery and the challenges facing both businesses and workers. While the labor market has shown resilience in recent years, the latest figures suggest that the pace of improvement is slowing, and that further policy interventions may be needed to support employment and wage growth.
