UK unemployment is expected to climb to its highest level in more than a decade in 2026, as economists warn that weak growth, rising employment costs and subdued private sector confidence continue to weigh on the labour market.
According to The Times’ annual Economists Survey of 48 leading economists, more than two-thirds believe the unemployment rate will end 2026 between 5% and 5.5%, up from its current level of 5.1%. If the upper end of that range is reached, it would mark the highest jobless rate since 2015.
The survey paints a downbeat picture of an economy increasingly reliant on government spending, with private sector hiring constrained by higher taxes, rising wages and ongoing uncertainty following the Chancellor’s autumn Budget.
Economists point to Rachel Reeves’s £25bn increase in employer National Insurance contributions, alongside higher minimum wages and forthcoming changes under the Employment Rights Bill, as key drags on hiring intentions.
Fhaheen Khan, senior economist at Make UK, said businesses are being hit “from multiple directions” when it comes to employment costs, making recruitment and workforce expansion increasingly difficult.
Nina Skero, chief executive of the Centre for Economics and Business Research, added that hiring will remain “suppressed” as firms grapple with weak demand, higher payroll taxes and what she described as an “exceptionally high” minimum wage in some sectors.
For small and medium-sized businesses, these pressures are already translating into more cautious staffing decisions, delayed recruitment and greater reliance on automation and productivity improvements rather than headcount growth.
A majority of economists surveyed expect UK GDP growth to sit between 1% and 2% in 2026 — broadly in line with recent performance but far from the levels needed to materially improve living standards or business confidence.
Several economists warned that much of that growth will be driven by public spending rather than private investment.
Alpesh Paleja, deputy chief economist at the CBI, said the public sector is likely to do “more heavy lifting” than at any point since the 2010s, while Paul Dales, chief UK economist at Capital Economics, estimated that as much as 80% of growth in 2026 could come from government activity.
Jagjit Chadha, professor of economics at the University of Cambridge, summed up the outlook bluntly, describing the UK’s performance as “moribund”.
More than 80% of economists believe the Bank of England will cut interest rates at least twice in 2026, with some forecasting rates could fall from 3.75% to as low as 2.5%.
While lower borrowing costs may provide some relief to households and businesses, economists cautioned that rate cuts alone are unlikely to trigger a strong rebound in private sector investment or hiring.
James Smith, developed markets economist at ING, said concerns over inflation were “overblown”, suggesting there is room for monetary easing. However, others warned that unless confidence improves and employment costs stabilise, businesses may remain reluctant to expand.
Nearly three quarters of economists expect UK inflation to fall close to the Bank of England’s 2% target by the end of 2026, helped by lower energy bills and slower wage growth as the labour market cools.
Globally, economists were more optimistic. A majority expect world growth of between 2% and 3%, with the US economy forecast to outperform the UK and eurozone. However, most expect China to miss its 5% growth target next year.
For business owners, particularly SMEs, the survey reinforces expectations of a challenging year ahead: slower demand, cautious consumers and a tougher employment environment.
While interest rate cuts may ease pressure on borrowing, economists warn that without a meaningful improvement in productivity, private investment and business confidence, the labour market is likely to remain fragile through 2026.
