The UK unemployment rate has edged up to five per cent in the three months to March 2026, according to the Office for National Statistics (ONS). This marks a rise from the 4.9 per cent recorded in the previous month's data, despite a brief decline last month. The figures reveal a deteriorating jobs market, with vacancies dropping to a five-year low and payrolled employment falling.
Youth unemployment surges
Youth unemployment climbed to 16.2 per cent, with activity rates for this age group also declining. WPI Strategy economist Martin Beck noted that the drop in payrolled employees among those under 35 was more pronounced, falling by 296,000 since October 2024, compared to a rise of 18,000 for older workers. "In other words, the slowdown is not being felt evenly. Younger workers continue to bear the brunt of a cooling labour market," Beck said.
Vacancies and employment trends
The number of job vacancies fell to a five-year low, highlighting the challenges for job seekers. Payrolled employees decreased by 20,000 over the quarter, with an early estimate for the three months to April suggesting a potential drop of 100,000. Liz McKeown, ONS director of economic statistics, said: "Latest figures suggest the labour market remains soft, with vacancies at their lowest level in five years and unemployment higher than a year ago."
Wage growth, including bonuses, came in at 4.1 per cent, higher than anticipated. Excluding bonuses, pay growth was 3.4 per cent, in line with forecasts. The Bank of England is likely to scrutinise these figures closely, as wage pressures could influence interest rate decisions.
Expert warnings on youth unemployment
Jack Kennedy, senior economist at Indeed, described youth unemployment as a "flashing warning signal." He said: "Vacancies are falling, payrolled employment is declining, and the jobless rate is rising – a combination that signals the squeeze on businesses from rising costs and uncertainty is now feeding through into tangible job market deterioration. The spike in joblessness among young people is a reminder that the workers at the beginning of their careers feel these pressures first and hardest."
Economic context and forecasts
Separate GDP figures showed the economy expanded by 0.6 per cent in the first quarter, offering some encouragement to Chancellor Rachel Reeves. However, projections for the labour market vary, with the Office for Budget Responsibility and the Bank of England forecasting a peak unemployment rate of around 5.3 per cent. Some City analysts warn joblessness could climb higher.
Welfare secretary Pat McFadden said the rise in the employment rate was "encouraging" but noted the war in the Middle East was "casting a shadow on the labour market." Shadow business secretary Andrew Griffith attributed the deterioration to Labour government policies.
Interest rate implications
The Monetary Policy Committee will closely monitor wage pressures amid fears that rising inflation, driven by the Iran war, could push up wages and trigger a spiralling effect on prices. The International Monetary Fund indicated the Bank would not need to raise interest rates this year, though it cautioned that rates depend on data staying in line with expectations.
Welfare reforms and Neets crisis
Economists are watching for anticipated government welfare reforms. The Alan Milburn review into young people not in education, employment or training (Neets) is expected to release initial findings soon. A report by the Institute for Fiscal Studies revealed that only 50.6 per cent of 16 to 24-year-olds were in employment between late 2022 and 2025, down from 54.9 per cent. Two-thirds of the population were in the labour force, while nearly one in nine young people (640,000 individuals) claimed an out-of-work benefit.
Jed Michael, research economist at IFS, said: "The job of the Milburn review is made much harder by a lack of clarity as to what is driving the fall. While it does not seem to be down solely to a temporary cyclical downturn in the economy, more evidence is needed to understand the roles of minimum wages, youth mental health, AI and other factors."
