A rising tide of unemployment is set to sweep across the UK, with a peak of 5.3% predicted for this year. This worrying trend is particularly impacting young people, who are facing an uncertain future in the job market.
The government's official forecaster, the Office for Budget Responsibility (OBR), has issued a stark warning, stating that unemployment will reach its highest level since the Covid-19 pandemic lockdown in 2020. Excluding that period, it will be the worst since 2015.
But here's where it gets controversial... the OBR has also downgraded the UK's growth prospects, with GDP expected to grow by just 1.1% in 2026. And this is the part most people miss: the potential impact of the Iran war on the UK economy. The OBR acknowledges that its projections are uncertain due to this conflict, which could have a massive effect on energy prices and, consequently, inflation.
Prof. David Miles, a member of the OBR's budget responsibility committee, said: "All the market developments suggest a more challenging economic and fiscal outlook." He warns of a "material impact on inflation" if energy prices continue to rise.
The rise in unemployment is primarily due to firms reducing their hiring rather than laying off existing staff. This has a disproportionate effect on those entering the workforce for the first time, as explained by Miles: "You'd expect it to hit those joining the labor force the hardest, and that's exactly what we're seeing. Youth unemployment is a particularly worrying trend."
The latest figures from the Office for National Statistics (ONS) show unemployment at 5.2% in the final quarter of 2025, the highest since early 2021. Young people aged 16-24 are bearing the brunt, with 16% now unemployed, nearing an 11-year high.
Economists attribute this rise to government policies, including attempts to equalize the national minimum wage for all ages and an increase in national insurance contributions for employers. Prof. Miles agrees, stating that these policies "disproportionately increase the cost of employing very young people."
The OBR expects this weak hiring trend to continue, with unemployment remaining higher than previously forecast until 2029. Chancellor Rachel Reeves has announced reforms to apprenticeship schemes to prioritize young people, aiming to "undo the Tory legacy of neglect" and provide support and opportunities for youth.
Alongside these unemployment figures, the OBR predicts an increase in the overall tax burden, rising to 38% of GDP by 2030. This would be the highest level on record, above even the tax burden at the end of World War II. The forecaster attributes this partly to the chancellor's decision to freeze income tax thresholds, which, combined with inflation, will pull more people into paying tax or moving into higher tax brackets.
Tom Josephs, another member of the budget responsibility committee, said: "The increase in personal taxes is largely due to the policy of freezing personal tax thresholds. This, combined with strong nominal earnings, increases tax as a share of GDP, accounting for around two-thirds of the increase in the tax burden."
The OBR also highlights changes to net inward migration statistics, which have led to a reduction in the adult population by about 200,000 by 2030. Prof. Miles notes that this will impact GDP growth as a significant portion of those emigrating would have been working. However, he adds that this won't affect GDP per person or the standard of living, as the population decrease "evens out" the lower GDP.
So, what do you think? Is the government doing enough to tackle youth unemployment and support young people? And how will these economic trends impact your life? We'd love to hear your thoughts in the comments below!
