Get ready for a sobering reality check: unemployment in the UK is on the rise, and it's hitting our young people hard. The government's official forecaster, the Office for Budget Responsibility (OBR), has some worrying news for us. They predict that unemployment will peak this year at a higher rate than we've seen in a while, with a significant increase in young people struggling to find work.
The OBR's latest forecast puts unemployment at 5.3% for 2026, which is a jump from their previous estimate of 4.9% back in November. To put that into perspective, this is the highest unemployment rate since the UK's Covid lockdown in late 2020. Excluding that period, it's the highest rate since September 2015.
But here's where it gets controversial: the OBR also downgraded the UK's growth prospects for this year. GDP is expected to increase by just 1.1% in 2026, down from 1.4% in 2025, and then average 1.6% annually until 2030. And this is the part most people miss: the OBR acknowledges that these projections are highly uncertain due to the ongoing Iran war, which could have a massive impact on the UK economy.
Prof. David Miles, a member of the OBR's budget responsibility committee, puts it bluntly: "All the market developments over the last week or so have been making economic and fiscal outcomes more challenging." He warns that if energy prices continue to rise and stay high, it will have a material impact on inflation.
So, what's causing this rise in unemployment? Miles explains that it's not so much about firms laying off staff, but rather a reduction in hiring. This has a bigger impact on those entering the workforce for the first time. "You'd expect it to disproportionately affect people joining the labor force, and that's exactly what we're seeing. The numbers on youth unemployment are particularly worrying," he says.
The latest official figures from the Office for National Statistics (ONS) back this up. Unemployment rose to 5.2% in the final quarter of 2025, the highest rate since early 2021. Young people aged 16-24 have been hit the hardest, with 16% now unemployed - that's nearly an 11-year high.
Many economists point to the government's attempts to equalize the national minimum wage for younger and older workers, as well as the increase in national insurance contributions for employers last April, as partial causes for the rise in youth unemployment. Prof. Miles agrees, saying these policies "disproportionately increase the cost of employing very young people."
The OBR expects this weak hiring trend to continue in the near term, with unemployment remaining higher than previously forecast up to 2029. Chancellor Rachel Reeves has announced plans to reform apprenticeship schemes to prioritize young people, aiming to "undo the Tory legacy of neglect" and provide young people with the support and opportunities they deserve.
Alongside these unemployment figures, the OBR also predicts an increase in the overall tax burden, which will rise from 36% of GDP to 38% by 2030. Personal taxes will account for half of this increase, which would be the highest level on record, surpassing the 37.2% tax burden at the end of World War II.
Tom Josephs, another member of the budget responsibility committee, explains that this increase in personal taxes is largely driven by the policy of freezing personal tax thresholds, which, combined with relatively strong nominal earnings, pushes up tax as a share of GDP.
The OBR also highlights changes to the way the ONS measures net inward migration, which has resulted in a bigger recorded rise in British nationals emigrating. This has led to a reduction in the adult population of around 200,000 by 2030 compared to their November forecast. Prof. Miles notes that this will impact GDP growth as a significant portion of that group leaving the country were working. However, he adds that this won't affect GDP per person or the standard of living, as the population decrease somewhat evens out the lower GDP.
So, there you have it: a complex web of factors impacting the UK's unemployment and economic landscape. What are your thoughts on these developments? Do you agree with the OBR's forecasts and the potential causes for the rise in unemployment? Feel free to share your insights and opinions in the comments below!
