UK unemployment edges down to 4.9% in first quarterly decline in nearly two years

LONDON (MNTV) — The United Kingdom’s unemployment rate eased to 4.9% in the December 2025 to February 2026 period, slipping from 5.1% in the preceding three-month window, according to data released by the Office for National Statistics (ONS). The modest improvement marks the first quarterly decline in unemployment recorded over roughly the past 20 months, offering a tentative glimmer of stability after a prolonged period of labour market strain.

Despite the quarterly drop, the headline rate still reflects a notable deterioration compared to a year earlier. Unemployment levels have risen by around 323,000 over the past year, with the rate climbing from 4.4% over that period.

Employment and inactivity

The improvement in unemployment was not mirrored across all indicators. The estimated UK employment rate dipped slightly, falling by 0.1 percentage points to 75% during the same period. Meanwhile, economic inactivity — which captures those of working age neither employed nor actively seeking work — climbed by 0.2 percentage points to 21.0%, compared with the September to November 2025 quarter.

Around 9.00 million people aged 16 to 64 were classified as economically inactive, with the inactivity rate standing at 20.7% in the most recently comparable figures.

Beyond survey-based estimates, administrative data from HM Revenue and Customs paints a more sobering picture of the underlying labour market. The number of payrolled employees fell by 96,000 — roughly 0.3% — between January 2025 and January 2026. 

The early estimate for February 2026 also showed a further decline of 49,000 on the year, though it increased slightly on the month by 20,000, bringing the total to 30.3 million. That estimate is provisional and subject to revision.

Wages slowing, but still outpacing inflation

Wage growth has been decelerating sharply. Average nominal pay growth has slowed to 3.8% — its lowest level since November 2020 — ending a 48-month run of above-4% annual increases. 

Private sector wage growth has fallen further still, to just 3.3%, meaning many workers are seeing little to no real improvement in their living standards, particularly as inflation remains above target.

In real, inflation-adjusted terms, average wages did increase — by 0.7% including bonuses and 0.5% excluding bonuses — in the three months to January 2026.

Youth unemployment and regional inequality

The broader data reveal serious structural concerns, especially for younger workers. 

Nearly 40% of unemployed young people aged 18 to 24 have been out of work for more than six months, and one in four young men actively seeking employment has been unemployed for over a year. 

The employment rate for 16 to 24-year-olds not in full-time education is at its lowest point in a decade, including during the pandemic.

Regional disparities are also widening. 

The North East and the West Midlands — already areas with historically lower employment rates — have seen the steepest falls in employment over the past year.

Job vacancies fell over the year to 721,000 in December 2025 to February 2026, dropping below pre-pandemic levels. With rising unemployment and weak hiring, the ratio of unemployed people to available vacancies has climbed to 2.6 — the highest in a decade outside of the pandemic period.

Causes and context

Various explanations have been put forward for the sustained rise in unemployment, including difficult global economic conditions, growing adoption of artificial intelligence, and sluggish overall growth. 

Businesses have particularly pointed to steep increases in the national minimum wage for younger workers and higher national insurance contributions as factors weighing on hiring decisions.

The retail and hospitality sectors have been hit hardest, with over 120,000 fewer jobs compared to January 2025. 

The rate of new hiring has fallen to around 16% below pre-pandemic levels, reflecting a broad slowdown in employer recruitment activity.

Analysts warn that a single quarter of improvement may not signal a sustained turnaround. Goldman Sachs had expected the unemployment rate to rise to 5.3% by March 2026 before stabilising through the remainder of the year, as growth edges back toward its potential rate. 

Some economists at Capital Economics have cautioned that private sector activity will remain weak in 2026, and that the ongoing softening in the labour market will continue to weigh on wage growth.

Adding pressure to the outlook, April 2026 is set to bring further increases to the cost of employment for businesses, potentially dampening any near-term recovery in hiring.

The ONS cautioned that Labour Force Survey estimates are currently less reliable than usual, and advised that the data be considered alongside other indicators such as payroll and vacancy statistics.