The Office for Budget Responsibility (OBR) has raised its unemployment forecast for the UK, predicting the jobless rate will peak at 5.3% this year, up from a previous estimate of 4.9%. This would be the highest level since the final quarter of 2020, when the country was in a Covid lockdown, and excluding that period, the highest since September 2015.
Young people have been particularly affected, with 16% of those aged 16-24 now unemployed, a near 11-year high. The OBR’s Professor David Miles described the youth unemployment figures as “worrying”, attributing the rise to firms cutting back on hiring rather than laying off staff, which disproportionately impacts those entering the workforce.
The OBR also downgraded the UK’s growth prospects for 2026 to 1.1%, down from 1.4% in 2025, and warned that inflation would fall from 3.4% this year to 2.3% in 2026. However, the projections are subject to uncertainty due to the Iran war, which could have a “very significant” impact on the economy if energy prices rise.
Economists have linked the rise in youth unemployment to government policies, including the equalisation of the national minimum wage for younger workers and an increase in employer national insurance contributions in April last year. Miles agreed these measures “disproportionately increase the cost of employing very young people”.
The OBR also revised its tax burden forecast, expecting it to rise from 36% of GDP to 38% by 2030, the highest on record, surpassing the post-World War II peak. This is largely driven by the freeze in income tax thresholds, pulling more people into paying tax or higher bands. Chancellor Rachel Reeves said the government would reform apprenticeship schemes to support young people, promising to “undo the Tory legacy of neglect”.
