UK unemployment rate rises to 5.2% as wages slow

Published: 17 February 2026. The English Chronicle Desk. The English Chronicle Online.

The UK unemployment rate has climbed to 5.2%, marking its highest level in nearly five years and signalling fresh pressure across Britain’s labour market. The latest figures confirm that the UK unemployment rate has risen steadily since 2022, while wage growth continues to cool. Economists now believe the changing UK unemployment rate may influence the next interest rate decision by the Bank of England. The data, released by the Office for National Statistics, reflects mounting concerns among employers and younger workers alike.

According to the official release, unemployment reached 5.2% in the three months to the end of December. This represents the highest reading since the quarter ending January 2021. The figure was broadly in line with market expectations, yet it confirms a gradual weakening of hiring conditions. In the previous rolling quarter to November, the rate stood at 5.1%, showing a consistent upward drift rather than a sudden shock.

The labour market has been adjusting under growing cost pressures. Businesses across sectors have argued that tax increases and regulatory costs have reduced hiring appetite. Many employers cite last year’s rise in employer national insurance contributions and the higher statutory minimum wage as key factors influencing recruitment decisions. These added expenses, they say, have narrowed profit margins at a time of modest economic growth.

Younger people appear to be bearing the brunt of the slowdown. Unemployment among those aged between 18 and 24 has risen to 14% in the same three-month period. That is the highest youth jobless rate recorded in five years, excluding pandemic distortions. Analysts warn that Britain risks falling behind comparable economies in youth employment performance, a shift that could have long-term consequences for productivity and skills development.

Labour market specialists suggest several forces are converging. Higher employment costs have weighed particularly heavily on entry-level recruitment. At the same time, companies are reassessing junior positions in light of rapid technological change. Advances in automation and artificial intelligence are encouraging some firms to streamline administrative roles. This shift is especially visible in retail, hospitality, and support services, where margins remain tight.

Wage growth figures underline the cooling momentum. In the three months to December, average earnings excluding bonuses increased by 4.2% in Great Britain. That was down from 4.4% in the previous month. Private sector pay rose by 3.4%, marking its slowest pace in five years. By contrast, public sector wages increased by 7.2%, reflecting previously agreed settlements and targeted recruitment efforts in health and education.

When adjusted for inflation, real pay growth excluding bonuses rose by just 0.8% between October and December. This was the weakest real increase since August 2023. Inflation itself stood at 3.4% in December, slightly higher than the 3.2% recorded a month earlier. Although price growth remains above the central bank’s target, wage pressures appear to be easing.

The number of employees on company payrolls also declined over the year. Payroll numbers were down by 134,000 compared with twelve months earlier and fell by 46,000 over the quarter. On a monthly basis, January recorded a drop of 11,000. However, a sharp decline initially reported for December was later revised. The earlier estimate of a 43,000 fall was adjusted to a much smaller 6,000 decrease after updated data was processed.

These revisions highlight the fluid nature of labour statistics. Economists caution against overinterpreting a single monthly change. Nevertheless, the broader direction remains clear. The labour market has cooled from its post-pandemic strength, and businesses are exercising greater caution.

The trajectory of the UK unemployment rate now carries significant implications for monetary policy. The Bank of England held its benchmark interest rate at 3.75% at its most recent meeting. Policymakers signalled that future decisions would depend heavily on wage growth and employment trends. With earnings growth softening and payrolls falling, some analysts believe the central bank may consider a rate cut in early spring.

Market expectations have shifted accordingly. Financial analysts suggest that at least one further reduction in borrowing costs is possible within months. Some even argue that the probability of a March move has increased compared with April. The rationale rests on easing wage inflation and signs of slack emerging in the workforce.

However, policymakers face a delicate balance. While cooling wages reduce inflationary pressure, rising joblessness presents social and economic risks. A sustained increase in the UK unemployment rate could weigh on consumer confidence and spending. Households facing employment uncertainty are more likely to save rather than spend, potentially slowing broader economic growth.

Government ministers have acknowledged the challenge. Efforts to address youth unemployment have intensified, including funding commitments aimed at apprenticeships and training. Officials argue that targeted investment will support young people entering the workforce. The strategy seeks to bridge skill gaps and encourage employers to create new opportunities despite higher costs.

Business groups remain cautious. Many report subdued hiring intentions for the first half of 2026. Surveys indicate that firms are prioritising cost control and productivity improvements over workforce expansion. Some sectors, including technology and renewable energy, continue to recruit. Yet these gains have not fully offset reductions elsewhere.

The wider economic context remains mixed. Output growth has been modest, with consumer demand constrained by higher living costs and mortgage payments. Although inflation has eased from earlier peaks, price levels remain elevated compared with pre-pandemic norms. This environment complicates forecasting and heightens sensitivity to labour market shifts.

International comparisons also provide perspective. Several advanced economies have experienced a gradual cooling in employment growth as interest rate tightening takes effect. Yet the pace differs across countries. Observers note that the UK’s structural reliance on services makes it particularly sensitive to shifts in domestic demand and regulatory costs.

For households, the picture is nuanced. Those in stable employment continue to benefit from nominal wage gains. Yet real income growth has slowed sharply. For individuals seeking work, competition has intensified, especially among young applicants. Recruitment agencies report longer hiring processes and fewer entry-level vacancies than a year ago.

The coming months will test whether the rise in the UK unemployment rate stabilises or accelerates. Much will depend on business confidence and external economic conditions. Energy prices, global trade flows, and geopolitical developments all carry potential influence.

As Britain navigates this period, policymakers must weigh competing priorities carefully. Containing inflation remains essential for long-term stability. At the same time, sustaining employment and supporting younger workers is crucial for future prosperity. The interplay between wages, prices, and hiring will define economic headlines through the spring.

The latest data offers a snapshot rather than a conclusion. It suggests a labour market losing momentum but not collapsing. The steady increase in the UK unemployment rate underscores structural pressures and policy dilemmas. Whether interest rate adjustments can restore balance without reigniting inflation remains uncertain. What is clear is that Britain’s economic path in 2026 will hinge on how these forces evolve.

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