UK unemployment rate hits highest level in nearly five years

(Sharecast News) - The UK unemployment rate hit its highest level in nearly five years in December, while earnings growth eased, according to figures released on Tuesday by the Office for National Statistics. The jobless rate nudged up to 5.2% in the three months to December from 5.1% in the previous three months, hitting the highest level since the first quarter of 2021. Economists were expecting the rate to be unchanged.

Basic pay excluding bonuses rose by 4.2% in the quarter, down from 4.4%. Total earnings including bonuses grew 4.2%, down from 4.6% in September to November.

The data also showed that payrolled employees fell by 121,000 between December 2024 and December 2025, and by 6,000 between November 2025 and December 2025.

The early estimate of payrolled employees for January 2026 showed a 134,000 decline on the year, and an 11,000 drop on the month, to 30.3 million.

ONS director of economic statistics Liz McKeown said: "The number of workers on payroll fell further in the final quarter of the year, reflecting weak hiring activity, although it is largely unchanged in the latest month. Over the same period the unemployment rate increased, with data showing that more people who were out of work are now actively looking for a job.

"The number of vacancies has remained broadly stable since the middle of last year. Alongside rising unemployment this means that the number of unemployed people per vacancy has increased, reaching a new post-pandemic high. Meanwhile, redundancies are also showing an upward trend.

"Private sector wage growth continues to slow and is at its lowest rate in five years. Public sector pay growth also slowed in the latest period but remains elevated, still affected by some pay awards being implemented earlier in 2025 than 2024, although this effect has now started to diminish."

Jake Finney, senior economist at PwC UK, said: "The latest ONS data shows the UK labour market continues to weaken. Payrolled employment is falling, unemployment is edging higher, and redundancies are picking up. Vacancies appear to be stabilising, but it will take time before that translates into a clear improvement in the headline indicators.

"More importantly for the Bank of England, pay growth is easing. The Bank's preferred measure of private sector pay growth has fallen to 3.4%, broadly in line with expectations, while broader measures that include bonuses have slowed even more sharply. Wage growth is now much closer to rates consistent with the 2% inflation target than it was a year ago.

"With slack building in the labour market and inflation moving in the right direction, the case for further rate cuts is strengthening. A move as early as March cannot be ruled out."