Unemployment reached the highest rate in almost five years.

Britain’s unemployment rate has risen again – to the highest level in almost five years, according to new official figures.

The unemployment rate rose to 5.2% in December, the highest in the three months to January 2021, data from the Office for National Statistics (ONS) showed.

When Labour took power in 2024, promising economic growth, the figure was 4.1%.

The ONS said more people out of work are now actively looking for a job, while the number of unemployed people per job vacancy is at a new high since the pandemic. However, there has been a slight change in the number of jobs in the last few months.

Redundancies are also increasing, according to ONS data.

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Not everyone has the same unemployment rate; unemployment among those aged 18 to 24 increased from 13.7% to 14%.

However, the ONS continues to advise caution when interpreting changes in the monthly unemployment rate and the number of job vacancies over concerns about the reliability of the data.

Why is unemployment increasing?

The new figures come as more than a third of employers say they are cutting hiring because of new workers’ rights, according to a survey by the Chartered Institute of Personnel and Development (CIPD).

The Employment Rights Act, which became law in December, guarantees workers’ rights, including parental leave and sick pay, from the first day on the job.

Employing staff has become even more expensive due to an increase in employers’ National Insurance contributions in April.

Millions of minimum wage earners got pay hike

Catherine Mann, a senior economist and interest rate setter at the Bank of England, said over the weekend that the higher minimum wage for young workers contributed to the rise in unemployment among that group.

Gulf in salary hike in private and public sector

The rate of wage growth has also declined and the gap between private and public sector wage growth remains.

Average annual income grew by 7.2% for the public sector and 3.4% for the private sector. This higher public sector figure is due to some salary increases being issued earlier in 2025 than in 2024.

Overall, wages rose 4.2% in the three months to December, down from 4.4% seen a month earlier.

What does this mean for interest rates

Slower wage growth could be welcome news for interest rate setters at the Bank of England, as higher wage growth could push up overall prices and make it harder to reduce inflation.

Interest rates have been kept relatively high at 3.75%, as the bank attempts to reduce inflation to 2%.

Traders now think there is an 81% chance of a rate cut in March.

Now another cut is likely to be seen in September, which will bring the cost of borrowing down to 3.25%.