The UK’s unemployment rate has climbed to 5.2%, marking a near five-year high and fuelling fresh criticism of Chancellor Rachel Reeves’ tax policies, according to the new data released by the Office for National Statistics (ONS).
The figure, which includes the three months to December 2025, represents a rise from 5.1% in the previous quarter and the highest level since the early pandemic period in early 2021.
It comes as payrolled employee numbers continued to fall, with an early estimate showing a drop of 134,000 (0.4%) in January 2026 compared to a year earlier, taking the total to around 30.3 million.
The ONS data highlights weak hiring activity across the economy, with businesses apparently holding back on recruitment amid rising costs. Vacancies remained broadly flat at 726,000 in the November 2025 to January 2026 period, showing little sign of a robust rebound.
Average wage growth slowed to 4.2% annually in the October-December quarter (both regular and total pay), down from previous levels, while real pay rises (after inflation) were modest at around 0.5-0.8% depending on the measure.
Private sector pay growth was particularly subdued at 3.4%, while public sector figures were boosted by earlier settlements.
Tax hikes to blame
Critics have been quick to link the softening jobs market to measures in Reeves’ 2025 Budget, which included hikes to employers’ National Insurance contributions, widely dubbed a “tax on jobs”, alongside increases in the National Living Wage and new employment rights obligations.
Business groups and opposition figures argue these changes have created uncertainty, prompting firms to pause hiring, favour automation, or avoid expanding headcounts.
Youth unemployment has emerged as a particular concern, with the rate for 18-24-year-olds reaching 14%, the highest since 2020 outside the pandemic, and even higher for younger teens. Sectors like retail and hospitality, which rely heavily on entry-level and minimum-wage roles, appear hardest hit.
Economists see the data as reinforcing expectations of Bank of England interest rate cuts, potentially as early as March, as weaker jobs and pay figures point to cooling inflationary pressures.
An already sluggish job market
The official numbers come against a backdrop of a stubbornly sluggish jobs market.
Data published by the Chartered Institute of Personnel and Development’s (CIPD) this week shows that the net employment balance, the share of employers expecting staff growth minus those anticipating cuts over the next three months, sits at a low +7, near historic lows outside the pandemic.
Public sector sentiment has worsened to -11, with ongoing recruitment freezes, voluntary exits, and redundancies in government departments contributing to a year of negative hiring plans.
Adding to the caution is the Employment Rights Act (ERA), now receiving Royal Assent and rolling out in stages through 2026. Three-quarters of employers expect the reforms, including day-one statutory sick pay and shifts to unfair dismissal rules, to push up their costs.
Around two in five say they’ll hire fewer permanent workers as a result, while over half foresee at least some increase in workplace conflict from the changes. Employers are particularly skeptical about trade union reforms, with nearly a third predicting more disputes rather than fewer.
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