UK unemployment hits post-pandemic peak as wage growth cools

UK economyAdd to myFTGet instant alerts for this topicManage your delivery channels hereRemove from myFTUK unemployment hits post-pandemic peak as wage growth cools Youth joblessness surges to highest in over a decadeUnemployment increased to 5.2% while youth unemployment rose to 16.1% © Justin Tallis/AFP/Getty ImagesUK unemployment hits post-pandemic peak as wage growth cools on x (opens in a new window)UK unemployment hits post-pandemic peak as wage growth cools on facebook (opens in a new window)UK unemployment hits post-pandemic peak as wage growth cools on linkedin (opens in a new window)UK unemployment hits post-pandemic peak as wage growth cools on whatsapp (opens in a new window) Save UK unemployment hits post-pandemic peak as wage growth cools on x (opens in a new window)UK unemployment hits post-pandemic peak as wage growth cools on facebook (opens in a new window)UK unemployment hits post-pandemic peak as wage growth cools on linkedin (opens in a new window)UK unemployment hits post-pandemic peak as wage growth cools on whatsapp (opens in a new window) Save Sam Fleming in LondonPublishedFebruary 17 2026UpdatedFebruary 17 2026Jump to comments sectionPrint this pageUnlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The UK jobless rate increased to a post-pandemic peak of 5.2 per cent at the end of last year as wage growth slowed, raising the prospect of a near-term cut in interest rates.The unemployment rate hit 5.2 per cent in the three months to December, its highest level in five years, compared with 5.1 per cent over the previous three-month period, according to the Office for National Statistics. Youth unemployment rose to 16.1 per cent, the highest in more than a decade, including a spike during the pandemic, a trend many economists link to higher payroll costs that deter employers from entry-level jobs.The Bank of England is watching the slowdown in the UK jobs market closely as it gauges when next to lower its interest rates. Some investors are banking on a quarter-point rate reduction to 3.5 per cent as soon as the BoE’s March meeting as wage growth softens alongside falling inflation.The pound weakened as traders anticipated a rising probability of rate cuts. It was down 0.7 per cent against the dollar at $1.354 by late afternoon in London. Following the data, swaps traders moved to push up the chance of a quarter-point cut next month from 70 per cent to nearly 80 per cent.“With unemployment ticking up and payrolls declining again, this is yet another soft labour market report,” said Luke Bartholomew, deputy chief economist at Aberdeen, the asset manager. “For now it seems there is a clear case for a further rate cut at the Bank’s next meeting in March, and we continue to expect rates to fall to 3 per cent later this year.”Annual growth in average weekly wages, excluding bonuses, slowed to 4.2 per cent in the last three months of the year, the ONS said on Tuesday, down from a revised 4.4 per cent in the three months to November.Private sector wage growth eased to 3.4 per cent, bringing it closer to the 3.25 per cent rate that the BoE thinks is consistent with its 2 per cent inflation target.The BoE’s Monetary Policy Committee held rates at 3.75 per cent in a knife-edge vote in its latest meeting this month, leaving the door open to a reduction as soon as its next decision on March 19.Data based on tax records showed the number of payrolled employees in the UK fell by 6,000 between November and December, leaving employment down by 121,000, or 0.4 per cent, over the past year. Provisional figures for January revealed a month-on-month decline of 11,000, although those figures will probably be revised. The UK economy grew by just 0.1 per cent in the final quarter, official figures showed last week, confirming the lacklustre picture. “Higher taxes, including a tax on jobs, soaring business rates, and anti-business red tape that piles on risk [are] making it harder to employ people,” said Mel Stride, the Conservative shadow chancellor. Economists warned the rise in youth unemployment was a sign that higher payroll costs, driven in part by the increase in employer national insurance contributions, and fragile confidence, were prompting employers to hesitate employing younger workers. Raising the minimum wage might also be disincentivising the hiring of young people, they added. “There are indications that younger workers in particular are being priced out of the market,” said Peter Dixon at the National Institute for Economic and Social Research.“This makes it harder for younger workers to get that crucial first foot on the career ladder,” added Jack Kennedy, an economist at jobs site Indeed. “This isn’t just a short-term problem. Delayed career starts can have lasting effects on earnings and progression.”Job vacancies fell from 736,000 in the three months to December to 726,000 in January, a further sign of weakening labour demand, the ONS data showed.James Smith, developed markets economist at ING, added that the data keeps the Bank of England firmly on track for a March rate cut. “Barring any surprises in next month’s data — or with inflation tomorrow — a March rate cut looks highly likely,” he said. “We expect another cut in June, and we don’t rule out the Bank taking rates even lower.” Additional reporting by Ian Smith in LondonReuse this content (opens in new window) CommentsJump to comments sectionPromoted Content Follow the topics in this article Global Economy Add to myFT UK economy Add to myFT Employment Add to myFT Rachel Reeves Add to myFT Sam Fleming Add to myFT Comments