Unemployment rate hits five-year high as younger people most likely to lose out

UK’s youth unemployment now higher than the EU average for the first time since records began

(AP)

Unemployment has risen to its highest level for five years and wage growth has slowed again, according to official figures, with the jobless rate among young people at its worst level for more than a decade.

The Office for National Statistics (ONS) said the rate of unemployment lifted to 5.2 per cent in the three months to December, up from 5.1 per cent in the three months to November.

This was the highest since the three months to January 2021, and outside of the pandemic era, it marks the highest since the autumn of 2015.

Most economists had expected unemployment to remain at 5.1 per cent in the latest quarter, but data from HMRC suggests further redundancies are already expected as firms continue to hold off hiring for entry level roles.

The ONS said the unemployment rate for 16 to 24-year-olds surged to 16.1 per cent in the latest quarter - the highest level since early 2015.

The Resolution Foundation think tank said the UK's youth unemployment is now higher than the EU average for the first time since records began in 2000, with the rate across Europe at 14.9 per cent in the final three months of last year.

As well as a scarcity of entry level roles, the impact of artificial intelligence is also impacting the availability of some positions, says Danni Hewson, AJ Bell’s head of financial analysis.

“Weaving AI into businesses to increase productivity is a positive move and may be the answer to a decades-old issue. But for young people in particular, already struggling to get their first taste of work, AI could result in a scarcity of entry level posts,” Ms Hewson explained. “With more people hunting jobs and the number of jobs being created remaining fairly static, the pressure on businesses to ramp up pay has also receded.”

Sanjay Raja, chief UK economist at Deutsche Bank, said there might be more to come too, noting “the data suggests there may be a little more room to go before we hit the cyclical peak in the unemployment rate” and added that the numbers would fuel expectation for the Bank of England cutting interest rates.

Next month’s unemployment data from the ONS is due out on 19 March - the same date the BoE’s Monetary Policy Committee are due to vote on potentially lowering rates from 3.75 per cent. Further key data, with regards to a potential cut, comes on 18 February with the latest inflation figures.

The ONS added that regular wage growth fell back once again, to 4.2% in the three months to December, against a downwardly-revised 4.4 per cent in the three months to November, and was 0.8 per cent higher after taking Consumer Prices Index inflation into account. Private sector pay is now growing only in line with inflation.

But there was a welcome increase in vacancies, up by 2,000 quarter-on-quarter to 726,000 in the three months to January - though with the rising unemployment rate, it means there are now more active candidates per vacancy.

Liz McKeown, ONS director of economic statistics, said the data showed “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.

“Meanwhile, redundancies are also showing an upward trend.”

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All now may hinge on tomorrow’s inflation figures, says Thomas Pugh, chief economist at tax and consulting firm RSM UK.

“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 on Thursday is all it will take to seal the deal.

“Overall, today’s data suggests the labour market was still weak at the end of last year. That strongly supports a rate cut as soon as next month and probably one more in the summer. But the Bank will still have to move cautiously amid sticky regular pay growth, especially as interest rates approach neutral.”

As for the wider employment market, job site Indeed’s senior economist Jack Kennedy says firms are still holding back on hiring more people, especially at the junior level.

“Employer caution is widespread across sectors. Businesses are essentially in wait-and-see mode, reluctant to commit to expanding their workforce until they have greater clarity on the economic outlook,” he said.

“What's particularly concerning is the weakness at entry level. Employers are navigating a difficult environment – higher payroll costs, fragile business confidence and persistent uncertainty around growth – and they're responding by pulling back on junior hiring. This makes it harder for younger workers to get that crucial first foot on the career ladder, and we're seeing this reflected in rising youth unemployment. This isn't just a short-term problem; delayed career starts can have lasting effects on earnings and progression.”

Pat McFadden, the Secretary of State for Work and Pensions, said the government remained focused on getting young people into work.

“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,” he said.

“Our £1.5 billion drive to tackle youth unemployment is a key priority and this month we announced that we’ll make it easier for young people to find and secure an apprenticeship, which comes on top of our investment to create 50,000 new apprenticeships.

“We’re also meeting people where they are – trebling the number of jobcentres on wheels, bringing a youth hub to every area in Great Britain and giving every young person the chance to earn or learn with our Youth Guarantee.”