Unemployment hits highest rate in nearly five years

The UK's unemployment rate has increased again - to the highest level in nearly five years, according to new official figures.

The jobless rate ticked up to 5.2% in December, the highest since the three months up to January 2021, data from the Office for National Statistics (ONS) showed. The figure had stood at 4.1% when Labour took office in 2024, promising economic growth.

More out-of-work people are now actively looking for a job, while the number of unemployed people per job vacancy is at a new post-pandemic high, the ONS said. Though there's been little change in the number of job openings over the last few months.

Redundancies are also increasing, according to the ONS data. Money blog: 'I booked an emergency plumber and cancelled minutes later but was still charged' Not everyone has the same unemployment rate; those aged 18 to 24 saw their unemployment increase to 14% from 13.7%.

The ONS, however, has continued to advise caution when interpreting changes in the monthly unemployment rate and job vacancy numbers over concerns about the reliability of the figures. Why is unemployment increasing? The new figures comes as more than a third of employers say they are cutting hiring due to new workers' rights, according to a survey from the Chartered Institute of Personnel and Development (CIPD).

The Employment Rights Act, which became law in December, guarantees workers entitlements including parental leave and sick pay from the first day of a job. It has also become more expensive to employ staff due to the rise in employers' national insurance contributions in April.

Higher minimum wages for younger workers contributed to the growth in unemployment among that cohort Catherine Mann, a senior Bank of England economist and interest rate setter, said at the weekend. Gulf in private and public sector wage growth There has also been a slowing down in the rate of pay increases and the gap between the private and public sector wage rises has remained.

Typical annual earnings rose 7.2% for the public sector and 3.4% for the private sector. This higher public sector figure is due to some pay rises being issued earlier in 2025 than in 2024.

Overall, pay rose 4.2% in the three months to December. It's a fall from the 4.4% growth in regular pay and the 4.6% rise in total earnings, which includes bonuses, seen a month earlier.

What it means for interest rates Slower wage growth will be welcome news for the interest-rate setters at the Bank of England. High wage rises can cause overall prices to rise and make it hard to bring down inflation.

Interest rates have been kept relatively high, at 3.75%, as the Bank attempts to have inflation fall to 2%. Traders now think there's a 81% chance of a rate cut in March.

A further cut is now seen as likely in September wich would bring the borrowing cost to 3.25%..