The UK's unemployment rate is set to soar to 5.3% this year, marking a significant rise from the previously estimated 4.9%. This worrying trend is particularly concerning for young people, with youth unemployment reaching nearly an 11-year high. The Office for Budget Responsibility (OBR) has downgraded the UK's growth prospects, predicting a GDP increase of 1.1% in 2026, down from 1.4% in 2025. The OBR attributes this to the Iran war, which could have a "very significant" impact on the UK economy. Prof David Miles, a member of the OBR's budget responsibility committee, highlights that firms are cutting back on hiring rather than laying off staff, disproportionately affecting new entrants to the workforce. The latest figures from the Office for National Statistics (ONS) show unemployment rising to 5.2% in the final quarter of 2025, with young people bearing the brunt of this rise. Many economists blame the government's policies, such as equalizing the national minimum wage and increasing national insurance contributions, for the rise in youth unemployment. The OBR expects unemployment to remain high, with a forecast of 4.2% in 2029 before dropping to 4.1% in 2030. The Chancellor, Rachel Reeves, has announced reforms to apprenticeship schemes to prioritize young people. Meanwhile, the OBR predicts an increase in the overall tax burden, with personal taxes accounting for half the increase, reaching a record high of almost 6% of GDP above the pre-pandemic level. This is partly due to the Chancellor's decision to freeze income tax thresholds, pushing more people into higher tax bands. The OBR also notes a reduction in the central forecast for net inward migration, which could impact GDP growth. However, Prof Miles reassures that this will not affect GDP per person or the standard of living, as the population is also expected to decrease.
