UK unemployment hits highest level in nearly five years as wage growth slows

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

This was the highest since the three months to January 2021 and the highest for over a decade outside of the pandemic era.

Most economists had expected unemployment to remain at 5.1% in the latest quarter.

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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% in the three months to November, and was 0.8% higher after taking Consumer Prices Index inflation into account.

But there was a welcome increase in vacancies, up by 2,000 quarter-on-quarter to 726,000 in the three months to January.

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.”

Peter Dixon, senior economist at the National Institute of Economic and Social Research, said: “Wage inflation continues to slow, but while the deceleration from 4.6 per cent in the three months to November to 4.2 per cent in the fourth quarter was sharper than expected, it is still elevated relative to recent productivity trends.

“While companies remain concerned about the impact of high costs, a further marked slowdown in wage inflation is expected during the first quarter of 2026.

“This may be enough to tip the balance of MPC votes in favour of a 25 basis point cut in Bank Rate later in the spring.

“Below the surface, however, there are indications that younger workers in particular are being priced out of the market.

“A rise of 33 per cent in the minimum wage over the past two years has pushed up the unemployment rate for 18-24 year-olds by more than two percentage points to 14 per cent.

“With a further inflation-plus rise in the minimum wage for 18-20 year-olds scheduled for April, young workers will continue to struggle to gain a foothold in the labour market in the near-term.”