OBR Revises UK Unemployment Forecast Upwards Amid Economic Concerns
The Office for Budget Responsibility (OBR) has issued a sobering update on the UK's economic outlook, raising its unemployment estimates for the year and flagging a troubling increase in young people out of work. According to the government's official forecaster, unemployment is now projected to peak at 5.3% in 2026, a significant rise from the previous forecast of 4.9% made in November 2025.
Youth Unemployment Hits Worrying Levels
Professor David Miles, a member of the OBR's budget responsibility committee, described the situation as particularly alarming for youth employment. He explained that the rise in unemployment is primarily driven by firms scaling back on hiring rather than implementing mass layoffs, which disproportionately affects individuals entering the workforce for the first time. "You would expect it to have a disproportionate impact on people joining the labour force and trying to find a job for the first time, and that does seem to be happening. There's worrying numbers on youth unemployment in particular," Miles stated.
Recent data from the Office for National Statistics (ONS) supports this concern, showing unemployment rose to 5.2% in the final quarter of 2025, the highest rate since early 2021. Among 16 to 24-year-olds, unemployment has surged to 16%, marking an almost 11-year high. Economists attribute this spike partly to government policies, such as equalising the national minimum wage across age groups and increasing national insurance contributions for employers in April 2025, which Miles noted "disproportionately increase the cost of employing very young people."
Economic Growth Downgraded and Tax Burden Rises
Alongside the bleak employment forecast, the OBR has downgraded the UK's growth prospects. Gross domestic product (GDP) is expected to increase by 1.1% in 2026, down from 1.4% in 2025, before averaging 1.6% annually until 2030. Inflation is projected to fall from 3.4% in 2025 to 2.3% in 2026 and stabilise at 2% from 2027 to 2030. However, the OBR cautioned that these projections are subject to significant uncertainty, particularly due to the ongoing conflict in Iran, which could have a "very significant" impact on the UK economy.
Prof Miles highlighted the risks, saying, "All the market developments over the last week or so have been in the direction of making the economic and fiscal outcomes more difficult." He warned that persistent increases in energy prices could lead to a "material impact on inflation."
The OBR also reported that the overall tax burden will climb from 36% of GDP to 38% by 2030, with personal taxes accounting for half of this increase. This would set a new record, surpassing the 37.2% level seen at the end of the Second World War and marking an almost 6% rise above pre-pandemic levels. Tom Josephs, another committee member, attributed this largely to the chancellor's decision to freeze income tax thresholds in the autumn budget, which pulls more people into tax brackets due to inflation.
Migration Changes and Long-Term Outlook
In addition to employment and tax revisions, the OBR adjusted its forecast for net inward migration, lowering it by about 200,000 adults by 2030 compared to November's estimates. This change stems from updated ONS measurement methods that record a larger rise in British nationals emigrating. Miles noted that this reduction could impact GDP growth, as 50% to 60% of those leaving would have been working, but he reassured that it would not harm GDP per person or living standards, as the population decrease offsets the economic output decline.
Looking ahead, the OBR expects weak hiring to persist in the near term, with unemployment remaining higher than previously forecast each year until 2029, when it aligns with the November prediction of 4.2% before dropping to 4.1% in 2030. In response, Chancellor Rachel Reeves announced reforms to apprenticeship schemes aimed at prioritising young people, with further measures planned to address what she termed the "Tory legacy of neglect."
This comprehensive assessment underscores the challenges facing the UK economy, from rising unemployment and a growing tax burden to geopolitical uncertainties, all while highlighting the urgent need for targeted support for the younger workforce.
