UK Unemployment Unexpectedly Climbs to Five-Year High as Wage Growth Slows
The UK's unemployment rate has unexpectedly risen to its highest level in five years, while wage growth has slowed once again, according to official figures from the Office for National Statistics (ONS). The data reveals a jobs market under significant pressure, with key indicators pointing to weakening economic conditions.
Key Statistics Show Concerning Trends
The ONS reported that the unemployment rate increased to 5.2% in the three months to December, up from 5.1% in the previous three-month period ending in November. This marks the highest unemployment rate since the three months to January 2021 and represents the highest level outside the pandemic era for over a decade. Most economists had anticipated the rate would remain stable at 5.1%.
In a parallel development, regular wage growth fell back to 4.2% in the three months to December, down from a revised 4.4% in the three months to November. This represents the lowest wage growth figure in almost four years. However, after adjusting for Consumer Prices Index inflation, real wage growth showed a modest increase of 0.8%.
Mixed Signals in the Labour Market
Despite the concerning unemployment figures, there was some positive news regarding job vacancies. The number of vacancies increased by 2,000 quarter-on-quarter to reach 726,000 in the three months to January, marking the second consecutive rise. However, this stability in vacancies alongside rising unemployment has created a challenging ratio of unemployed people per vacancy, which has reached a new post-pandemic high.
Liz McKeown, ONS director of economic statistics, commented on the data, stating it shows "weak hiring activity" and that "more people who were out of work are now actively looking for a job." She added, "The number of vacancies has remained broadly stable since the middle of last year. Alongside rising unemployment this means that the number of unemployed people per vacancy has increased, reaching a new post-pandemic high."
Additional Economic Pressures
The ONS data revealed several other concerning trends. Redundancies increased by 11,000 to reach 145,000 in the final quarter of 2025. Furthermore, the number of workers on payrolls fell by 6,000 in the three months to December, with estimates suggesting a further drop of 11,000 in January to 30.3 million, though these figures are subject to revision.
This labour market weakness follows recent growth figures showing the economy recorded meagre growth of just 0.1% in the final three months of last year. The jobs market has been particularly strained in sectors such as retail and hospitality, where companies have responded to government policies including increased national insurance contributions and above-inflation minimum wage hikes by cutting jobs and slowing hiring.
Political Reactions and Policy Responses
The Conservative opposition criticised the latest unemployment figures, calling them "the predictable result of bad decisions and economic incompetence" by the Labour government. Shadow work and pensions secretary Helen Whately emphasised the impact on young people, stating, "Young people are taking the hardest hit. Entry-level roles are the first to disappear from Labour's tax hikes. By making hiring more expensive and more risky, Labour are ensuring school leavers and graduates never even get a foot in the door."
In response, Work and Pensions Secretary Pat McFadden highlighted positive employment figures, noting, "Today's figures show there are 381,000 more people in work since the start of 2025, but we know there is more to do to get people into jobs. Our £1.5 billion drive to tackle youth unemployment is a key priority."
Implications for Monetary Policy
Economic experts suggest this data will reinforce expectations for the Bank of England to implement another interest rate cut next month. An anticipated drop in inflation in data due on Wednesday is expected to further support arguments for a rates reduction.
Thomas Pugh, chief economist at RSM UK, explained, "December's rising unemployment rate, slowing private wage growth and falling payroll numbers in January all point towards a rate cut in March. A soft inflation number tomorrow is all it will take to seal the deal."
The combination of rising unemployment, slowing wage growth, and increasing redundancies paints a challenging picture for the UK labour market as policymakers grapple with balancing economic stability with employment support measures.
