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The UK’s unemployment rate has risen again, according to the latest figures 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 represents the highest rate in almost five years.
At the same time, annual wage growth has eased to 4.2%, marking its slowest pace in close to four years.
Taken together, slower wage growth and rising unemployment point towards a cooling labour market.
Businesses Responding to Higher Costs
Part of this slowdown may be linked to increased employment costs. The 2024 Budget raised employer National Insurance contributions and increased the minimum wage.
In response, some businesses appear to have delayed recruitment plans or chosen not to replace departing staff while they reassess budgets for the year ahead.
Younger Workers Bearing the Brunt
The unemployment rate for 16–24-year-olds has climbed to 16.1%. For school leavers and graduates, securing an entry-level position has become increasingly competitive.
Analysts have also suggested that investment in artificial intelligence could gradually reduce the number of traditional entry-level roles, potentially adding further pressure on new entrants to the jobs market.
Interest Rates
The moderation in wage growth may influence the Bank of England’s next decision on interest rates and could create scope for a further rate cut.
Looking Ahead
For your business, a softer labour market may make it easier to recruit for certain roles, with a larger pool of applicants available. However, it may also signal weaker consumer confidence, which could result in slower sales.
If you are considering investment, recruitment or borrowing over the coming months, this may be an appropriate time to review those plans carefully rather than rushing into decisions.
