Sammie Ellard-King
I’m Sammie, a money expert and business owner passionate about helping you take control of your wallet. My mission with Up the Gains is to create a safe space to help improve your finances, cut your costs and make you feel good while doing it.
The UK’s unemployment rate has hit 5.2% – the highest level in nearly five years.
Getting a job is now harder than before, with redundancies increasing and competition for each vacancy at a new post-pandemic high.
The jobless rate ticked up to 5.2% in December, the highest since the three months to January 2021, according to Office for National Statistics (ONS) data.
The figure stood at 4.1% when Labour took office in 2024, promising economic growth.
Why Is Unemployment Rising?
More than a third of employers say they’re 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’s also become more expensive to employ staff due to the rise in employers’ national insurance contributions in April.
More news:
Young People Hit Hardest
Not everyone has the same unemployment rate.
Those aged 18 to 24 saw their unemployment increase to 14% from 13.7%.
Catherine Mann, a senior Bank of England economist and interest rate setter, said at the weekend that higher minimum wages for younger workers contributed to the growth in unemployment among that cohort.
More People Competing for Fewer Jobs
More out-of-work people are now actively looking for a job.
The number of unemployed people per job vacancy is at a new post-pandemic high, the ONS said.
There’s been little change in the number of job openings over the last few months.
So the same number of vacancies are being fought over by more people.
Redundancies are also increasing, according to the ONS data.
There’s been a slowing down in the rate of pay increases. Overall, pay rose 4.2% in the three months to December, a fall from the 4.4% seen a month earlier.
The gap between private and public sector wage rises has remained wide.
Average 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.
What Does This Mean for Interest Rates?
Slower wage growth may be welcome news for interest rate setters at the Bank of England.
High wage rises can cause overall prices to rise and make it harder 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 an 81% chance of a rate cut in March.
A further cut is now seen as likely in September, which would bring the borrowing cost to 3.25%.
If you found this interesting, please share!
Disclaimer: Content on this page is for informational purposes and does not constitute financial advice. Always do your own research before making a financially related decision.
