The UK’s unemployment rate has risen again, according to the latest data from the Office for National Statistics (ONS). In the three months to December 2025, unemployment increased to 5.2%, up from 5.1% in the three months to November. This marks the highest rate in almost five years.
Alongside the rise in unemployment, annual wage growth has slowed to 4.2%, its weakest pace in close to four years.
This combination of slower wage growth and rising unemployment suggests a cooling labour market.
Businesses Reacting to Higher Costs
Part of the slowdown may be linked to increased employment costs. The 2024 Budget raised employer national insurance contributions and increased the minimum wage.
Some businesses appear to have chosen to delay recruitment or leave vacancies unfilled as they review budgets for the year ahead.
Younger Workers Bearing the Brunt
The unemployment rate for 16–24-year-olds has risen to 16.1%. For school leavers and graduates, securing an entry-level role has become increasingly competitive.
Analysts have also raised concerns that investment in artificial intelligence could reduce the number of traditional starter roles over time, adding further pressure to new entrants to the job market.
Interest rates
The slowdown in wage growth may influence the Bank of England’s next decision on interest rates and could give room for a further rate cut.
Looking ahead
For your business, a softer labour market might make it easier for you to fill certain vacancies, with more applicants available for job openings. However, it could also hint at weaker consumer confidence that may lead to slower sales. If you are planning investment, recruitment or borrowing in the coming months, this may be a useful moment to revisit those plans rather than rush decisions.
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