Unemployment is expected to climb to its highest level in the UK in more than a decade as weak growth, rising employment costs and cautious hiring weigh on the labour market. Economists predict that joblessness could rise above levels seen during the pandemic period, raising concerns about job security as the economy enters another year of subdued activity.
The outlook suggests that pressure on the jobs market is building rather than easing. With growth forecast to remain modest and business investment constrained, many organisations are expected to limit recruitment or postpone expansion plans. The environment is likely to intensify competition for roles while increasing uncertainty among workers already facing high living costs and limited pay progression.
The forecasts also point to longer term consequences for workforce stability. A prolonged period of weak hiring may leave employees feeling trapped in roles with limited mobility, while those seeking work could face longer spells of unemployment. The combination risks deepening anxiety across the labour market as economic momentum remains fragile.
Economists warn of rising joblessness
According to the Times Economic Survey, which questioned dozens of leading economists, most respondents expect UK unemployment to reach between 5 percent and 5.5 percent by the end of 2026. A smaller group warned it could climb even higher, exceeding the levels recorded during the Covid-19 crisis and marking the highest rate since the mid 2010s.
The survey findings point to a labour market under strain from multiple pressures. Economists cited higher employer national insurance contributions, rising minimum wages and weak consumer demand as factors limiting the appetite for hiring. Many also noted that private sector activity is expected to remain subdued, leaving job creation heavily reliant on government spending.
Fhaheen Khan, a senior economist at manufacturers’ organisation Make UK, told the Times that firms were being squeezed. “Businesses have been flanked with higher employment costs from multiple directions, from higher national insurance contributions to higher minimum wages, alongside the cost of preparing for more indirect employment costs arising from the Employment Rights Bill.”
Weak growth limits scope for job creation
The Times Economic Survey also found that most economists expect UK economic growth to remain between 1 percent and 2 percent in 2026, broadly in line with recent performance. That level of expansion is widely seen as insufficient to generate strong employment growth, particularly in sectors dependent on discretionary spending.
Several economists argued that government investment and public sector activity would account for much of the limited growth that does materialise. Private sector demand, by contrast, was expected to remain muted, reinforcing caution around recruitment and expansion.
Paul Dales, chief UK economist at research firm Capital Economics, said the majority of growth next year was likely to come from the public sector, with private sector activity remaining weak. Others echoed that view, warning that without a stronger recovery in business confidence, unemployment could remain elevated for some time.
Interest rate cuts ‘unlikely to ease labour market pressure’
Most economists surveyed expect the Bank of England to reduce interest rates at least twice in 2026. While lower borrowing costs may provide some relief, the survey suggests that any benefit for employment is likely to be gradual rather than immediate.
Some say concerns about inflation risks at the Bank appeared overstated and that interest rates are likely to fall further, although the impact on hiring may take time to feed through.
Taken together, the Times Economic Survey reveals a labour market facing persistent pressure rather than a quick recovery. With unemployment expected to rise and growth remaining modest, the year ahead is likely to test job security, workforce resilience and confidence across large parts of the UK economy.
