British bosses are warning of an unemployment spike, as hiring freezes hit
British business leaders are sounding the alarm over a looming rise in unemployment, driven by widespread hiring freezes amid stubbornly high labour costs, new employment regulations, and escalating global economic uncertainty.
In its latest economic forecast published on Tuesday (10 March), the British Chambers of Commerce (BCC) revised up its unemployment projection to 5.5% for 2026, up from a previous estimate of 5.1%, and expects the rate to remain elevated through 2027 before easing slightly to 5.3% in 2028.
The group highlighted that persistent high labour costs, including recent increases in national insurance contributions and incoming employment rights reforms, are dampening businesses’ appetite for new hires.
David Bharier, head of research at the BCC, warned that these pressures could make it particularly tough for younger workers to enter the jobs market.
Youth unemployment is projected to hit 17% in 2026, peaking at 17.1% the following year before a modest decline.
“Firms are increasingly adopting AI tools,” Bharier said in the report. “While the immediate impact on employment is likely to remain limited, deeper integration could reshape the labour market more fundamentally.”
He added that elevated costs from national insurance hikes and new regulations “could weigh on hiring decisions,” with the potential to push unemployment higher and hit entry-level roles hardest.
Sluggish growth
The BCC’s outlook comes against a backdrop of sluggish UK growth, now forecast at just 1.0% for 2026, down from the prior 1.2% projection, with only modest pickups to 1.3% in 2027 and 1.1% in 2028. Business investment is expected to flatline at 0% this year, while export growth slows sharply amid trade headwinds.
Global turmoil, particularly the escalating conflict in the Middle East involving Iran, is a major factor.
Higher oil and gas prices threaten to derail inflation progress, with CPI now seen reaching 2.7% by the end of 2026 (up from a previous 2.1% forecast) before easing toward the Bank of England’s 2% target in 2027.
The central bank is now expected to keep the base rate at 3.75% through 2026, delaying anticipated cuts.
“Businesses expected to be steering through choppy waters again this year, but global events have just made that voyage even more turbulent,” said Vicky Pryce, Chair of the BCC’s Economic Advisory Council.
“Rising unemployment, particularly among young people, will be a worrying drumbeat throughout this year, and likely to get worse given the likely slowdown in world growth from the effects of the conflict in the Middle East and the Gulf.”
The warnings align with broader signs of a cooling labour market. Recent data has shown UK unemployment already climbing to a five-year high of around 5.2% late last year, with businesses citing cost pressures and uncertainty as reasons for caution on recruitment.
Sectors like retail have signalled plans for hiring freezes and reduced hours, while reports indicate companies are holding off on expansions amid fragile confidence.
