UK unemployment rose to 4.6% in the three months to February 2026, the Office for National Statistics reported on Wednesday, continuing a gradual upward trend that began in mid-2025 as the effects of higher employer National Insurance contributions and a slowing global economy began to feed through into hiring decisions. While the rate remains historically low by international standards, the direction of travel is concerning policymakers who had hoped for a softer labour market adjustment that would ease wage pressures without triggering significant job losses.
The ONS data showed that the number of people in employment fell by 78,000 in the quarter, the largest quarterly decline since the immediate aftermath of the pandemic. Job losses were concentrated in manufacturing, construction and the hospitality and retail sectors, which have been most affected by the combination of higher labour costs and softer consumer spending. By contrast, the financial services, technology and healthcare sectors continued to add jobs, albeit at a slower pace than in 2024.
Wage growth, which the Bank of England has been watching closely as a key indicator of domestically generated inflation, eased to 5.3% on a year-on-year basis, down from 5.9% in the previous quarter. While this represents a welcome moderation, the level remains well above the approximately 3% pace that most economists judge to be consistent with the Bank’s 2% inflation target over the medium term.
The increase in the National Living Wage from £11.44 to £12.21 per hour in April 2026, alongside higher employer National Insurance contributions introduced in the October 2025 Budget, has emerged as a significant factor in employer hiring intentions. A survey of 500 small and medium-sized enterprises published by the Federation of Small Businesses this week found that 38% planned to reduce their workforce or freeze hiring in response to higher employment costs, with hospitality (62%) and retail (54%) businesses expressing the greatest concern.
Chancellor Rachel Reeves, facing questions about the labour market data in the Commons, argued that the employment trends were consistent with a “normalisation” of the post-pandemic labour market and pointed to the strong GDP data released last week as evidence that the economy was continuing to grow. Opposition politicians seized on the figures to argue that the government’s tax rises were costing jobs and undermining the recovery.
— Sarah Mitchell, London Capital Post
