Unemployment has climbed to its highest level in almost five years, with more people out of work and competition for jobs intensifying across the UK labour market.
The jobless rate rose to 5.2% in the three months to December, marking its highest point since early 2021. The increase reflects a combination of rising redundancies, slower hiring and a growing number of people actively seeking work.
There are now more unemployed people competing for each vacancy than at any point since the pandemic, making it harder for candidates to secure roles even where vacancies remain.
Redundancies rise as hiring confidence weakens
Data from the Office for National Statistics (ONS), the UK’s official statistics body, shows that redundancies are increasing while the number of job openings has remained broadly unchanged in recent months.
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This imbalance is adding pressure to the labour market, with employers becoming more cautious about recruitment and workforce expansion.
The trend is particularly pronounced among younger workers. Unemployment among those aged 18 to 24 has risen to 14%, up from 13.7%, pointing to growing challenges for early career entrants trying to secure stable employment.
At the same time, more people are actively looking for work, further intensifying competition and extending the time it takes to move into new roles.
Employers facing rising costs, policy changes
Hiring decisions are also being shaped by rising employment costs and changes to workplace legislation under the Employment Rights Act.
More than a third of employers have said they plan to reduce hiring following the introduction of new employment rights, including day one access to parental leave and sick pay. Increased employer national insurance contributions have also added to the cost of taking on staff.
These pressures are contributing to a more cautious approach to recruitment, particularly in sectors where margins are already tight.
Jack Kennedy, a senior economist at jobs site Indeed, told HRreview that it reflected deeper weakness in hiring demand.
“Slowing wage growth is a double-edged sword. While it may comfort policymakers worried about inflation persistence, it also reflects genuine weakness in labour demand,” he said.
“Employers are managing costs carefully, and are still feeling the impact of the National Insurance increase which hit businesses just as confidence was already fragile.
“Many are opting to do more with existing staff rather than hire, which may help explain some of the recent productivity growth we’ve been seeing.”
He said this cautious approach was now widespread across sectors.
“Employer caution is widespread across sectors. Businesses are essentially in wait-and-see mode, reluctant to commit to expanding their workforce until they have greater clarity on the economic outlook.”
Comments from policymakers have pointed to wage changes as a factor. Catherine Mann, a member of the Bank of England’s Monetary Policy Committee, said higher minimum wages for younger workers had contributed to rising unemployment in that group.
Pay growth slows as gap widens between sectors
Alongside rising unemployment, wage growth has begun to ease. Regular pay increased by 4.2% in the three months to December, down from 4.4% in the previous period.
A clear gap remains between public and private sector pay. Public sector earnings rose by 7.2%, influenced by earlier pay settlements, while private sector pay grew by 3.4%.
The slowdown in wage growth may ease concerns at the Bank of England about inflationary pressure, with policymakers aiming to bring inflation back towards the 2% target.
Interest rates remain relatively high at 3.75%, but markets are increasingly expecting a cut later in the year as wage growth moderates.
Labour market pressures reshape HR priorities
The latest data points to a more complex labour market than in recent years. While vacancies remain available, rising unemployment and increased competition for roles suggest a move away from the candidate driven market seen after the pandemic.
At the same time, observers say organisations are balancing tighter hiring with the need to retain key talent and manage workforce costs in a changing policy environment. With redundancies rising and hiring slowing, attention is likely to turn towards workforce planning, internal mobility and cost control as businesses adjust to a more uncertain outlook.
The ONS noted that caution should be used when interpreting short term movements in unemployment and vacancy data, but the broader direction suggests the labour market is softening after a period of relative resilience.
