Unemployment rises to highest level since 2015 as labour market cools
On Tuesday, new labour market figures showed that UK unemployment rises to 5.2 per cent, its highest level outside the pandemic period since 2015, raising fresh questions about whether the era of sustained low joblessness has run its course.
The increase follows a steady climb from 4.1 per cent when Sir Keir Starmer’s government took office. At one-decimal resolution, there has not been a single month since then in which unemployment has fallen.
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Around 120,000 payrolled employees were lost over the course of 2025, with a further decline of more than 10,000 recorded in January. The pace is measured rather than dramatic, yet the trend is consistent.
The UK labour market has long been considered comparatively flexible. During past slowdowns, employers adjusted hiring and wages without triggering sharp, sustained unemployment spikes. The question now is whether that period of resilience is beginning to fade.
Wages under pressure
Private sector pay growth is now only marginally above inflation. Public sector wages rose more sharply over the same period, although that partly reflects changes in the timing of pay settlements rather than a structural shift.
If wage growth in real terms weakens while unemployment rises, household spending power will narrow. That creates additional headwinds for an economy already expanding slowly.
Implications for public finances
An economy combining subdued wage growth with rising UK unemployment offers limited support for tax revenues. For a government seeking to maintain fiscal discipline while funding public services, the margin for error becomes thinner.
While the labour market is not in crisis, it is not generating the momentum seen in previous cycles.
What it could mean for London
London has historically outperformed national employment averages during periods of growth. Its economy is heavily weighted towards finance, law, consulting and technology, sectors that respond quickly to shifts in hiring sentiment.
A sustained rise in UK unemployment would therefore test recruitment across graduate schemes, contract roles and high-skilled professional services. The capital’s commercial property market and consumer spending would also feel the effects if caution becomes embedded.
Although economic inactivity has edged down to 20.8 per cent, it remains above its pre-pandemic level. That suggests structural participation challenges persist.
The broader picture is one of drift rather than collapse. Employment remains high by historical standards. But the direction of travel is upwards, and for the first time in years, sustained low unemployment can no longer be taken for granted.
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