UK Unemployment Set to Eclipse Pandemic High Within Months, Economists Warn

Britain’s jobs market is showing increasing signs of strain, with unemployment expected to climb above its pandemic-era peak in the coming months, according to leading economic forecasts. That sobering outlook comes amid fresh official figures showing joblessness near its highest point in half a decade.

Recent data from the Office for National Statistics (ONS) shows the UK unemployment rate rose to 5.2 per cent in the three months to December 2025, its strongest uptick in years and the highest since early 2021.

But most tellingly, forecasters — including economists at J.P. Morgan — believe the jobless figure could top its coronavirus peak within the next few months, with up to two million people likely to be out of work if current trends persist.

A Softer Labour Market

The rise in unemployment reflects a broader cooling in Britain’s labour market. Employment growth has stalled, payroll numbers have fallen, and hiring activity has recently weakened as firms grapple with higher operating costs and an uncertain economic backdrop.

• Wage growth has slowed — private sector pay rises are at their weakest in years.

• Job vacancies have dropped significantly, making competition for roles tougher.

• Graduate and entry-level positions have slumped, signalling particular difficulties for younger workers.

Youth unemployment remains a particular concern. Official figures show joblessness among 16- to 24-year-olds climbing, with some estimates putting the rate in double digits — the highest in over a decade outside the pandemic period.

Meanwhile, emerging data suggests record-low numbers of graduate jobs and entry-level vacancies, creating a challenging environment for young Brits trying to launch their careers.

Wage Growth and Interest Rate Policy

Alongside rising unemployment, wage growth has softened sharply. Pay increases excluding bonuses are now far below rates seen during the post-pandemic labour boom, slowing confidence among workers and employers alike.

That shift has also fuelled speculation that the Bank of England could start trimming interest rates as soon as March 2026, in a bid to support economic demand and encourage hiring.

What’s Driving the Change?

Economists point to a mix of factors dampening the jobs market:

• Higher business costs, including increased national insurance and minimum wage pressures, which continue to influence hiring decisions.

• Technological change, with automation and artificial intelligence reshaping entry-level roles across sectors.

• Weaker overall economic growth, which in turn impacts hiring confidence.

Although some employers still report demand for skilled workers, the overall trend points toward a softer labour market.

The potential for unemployment to breach its pandemic peak marks a turning point in the economic cycle — and one that policy makers, businesses and workers alike will be watching closely in the months ahead.