By Gloria Nosa
Offshore Correspondent
The United Kingdom is grappling with mounting employment challenges as the latest figures from the Office for National Statistics (ONS) reveal a sharp rise in unemployment, pushing the national jobless rate to its highest point in four years.
According to the ONS, the unemployment rate rose to 4.5% in the first quarter of 2025, a jump from 4.4% in the previous quarter. This marks the highest level since mid-2021 and signals a cooling labour market amid rising employer costs, weak business confidence, and slowing economic growth.
The increase in joblessness coincided with a 5.3% fall in job vacancies across various sectors, with the construction industry experiencing the largest drop. Meanwhile, payroll employment also declined, with 47,000 fewer workers on company books between February and March 2025.
Wage Growth Slows as Employers Cut Costs
Adding to the labour market pressures, wage growth is showing signs of slowing down. Average regular pay, excluding bonuses, grew by 5.6% in the three months to March 2025—down from 5.9% in the previous period. Although wages continue to outpace inflation, which stands at 2.3%, the downward trend suggests a tightening in the job market.
Economists point to a combination of government policy changes and broader economic conditions as contributing factors. Chancellor Rachel Reeves’ recent measures, including a rise in National Insurance contributions for employers and a 6.7% increase in the national living wage, have raised the cost of labour for many businesses. While intended to boost worker earnings, these changes have prompted some companies to freeze hiring or reduce headcount.
“Rising employment costs are starting to bite,” said Jonathan Forbes, a labour market analyst at the Centre for Economic Policy. “Firms are re-evaluating their hiring plans, especially in low-margin sectors, where the increase in wages and taxes is squeezing budgets.”
Youth and Entry-Level Workers Bear the Brunt
The job crisis is hitting younger workers particularly hard. The unemployment rate among 18–20-year-olds has surged to 12.8%, underscoring the struggle many face in securing stable employment. Analysts warn that this could have long-term consequences for a generation entering the workforce during a period of economic uncertainty.
In response, some advocacy groups are calling for targeted government interventions to support youth employment, such as apprenticeship subsidies and skill-building programs. “Young people need structured pathways into the labour market,” said Lisa Adeyemi, director of Youth Futures UK. “Without intervention, we risk deepening inequality and stalling social mobility.”
Bank of England Keeps Watch as Inflation Cools
The Bank of England, which recently reduced interest rates to 4.25%, is keeping a close eye on the labour market developments. While easing wage pressures could help bring inflation down, the central bank remains cautious. Governor Andrew Bailey acknowledged the “fragile state of the labour market” in a recent speech, noting that persistent unemployment could drag on consumer spending and broader economic recovery.
With inflation easing and employment challenges mounting, pressure is growing on policymakers to strike a careful balance between fiscal restraint and economic stimulus.
Looking Ahead
As the UK navigates an increasingly uncertain economic landscape, the government faces mounting calls to provide relief to struggling industries and vulnerable workers. Employment support schemes, tax relief for small businesses, and targeted training initiatives have been floated as potential solutions.
For now, the rise in unemployment serves as a warning signal that the labour market—once a pillar of post-pandemic recovery—is beginning to falter. The coming months will be critical in determining whether the UK can steer its workforce back toward stability or whether job insecurity will become a persistent feature of the economic outlook.
