U.K. unemployment is expected to rise to its highest level in more than a decade in 2026, as economists warn that weak growth, rising employment costs and subdued confidence in the private sector continue to weigh on the labor market.
More than two-thirds believe the unemployment rate will be between 5% and 5.5% by the end of 2026, up from its current level of 5.1%, according to the Times’ annual Economists Survey of 48 leading economists. If the upper end of this range is reached, it would be the highest unemployment rate since 2015.
The survey paints a bleak picture of an economy increasingly reliant on government spending, with private sector job hiring constrained by higher taxes, rising wages and ongoing uncertainty following the Chancellor’s autumn budget.
Economists point to Rachel Reeves’ £25 billion increase in employer national insurance contributions, along with higher minimum wages and impending changes to the Employment Rights Bill, as significantly inhibiting hiring intentions.
Fhaheen Khan, senior economist at Make UK, said businesses were being hit “from multiple directions” when it came to staff costs, making recruiting and expanding the workforce increasingly difficult.
Nina Skero, executive director of the Center for Economics and Business Research, added that hiring remains “suppressed” as companies struggle with weak demand, higher payroll taxes and what she called an “extraordinarily high” minimum wage in some sectors.
For small and medium-sized businesses, these pressures are already leading to more cautious staffing decisions, delays in hiring, and a greater reliance on automation and productivity improvements rather than workforce growth.
A majority of economists surveyed expect Britain’s GDP growth to be between 1% and 2% in 2026 – broadly in line with recent performance but far from the level needed to significantly improve living standards or business confidence.
Several economists warned that much of this growth will come from public spending rather than private investment.
Alpesh Paleja, deputy chief economist at the CBI, said the public sector was likely to be doing “harder work” than at any time since the 2010s, while Paul Dales, chief UK economist at Capital Economics, estimated that up to 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 Britain’s performance as “dying”.
More than 80% of economists believe the Bank of England will cut interest rates at least twice in 2026, with some forecasting rates falling from 3.75% to as much as 2.5%.
While lower borrowing costs could provide some relief for households and businesses, economists warn that interest rate cuts alone are unlikely to trigger a strong rebound in private sector investment or hiring.
James Smith, developed markets economist at ING, said inflation concerns were “overblown”, suggesting there was scope for monetary policy easing. But others warned that companies may remain reluctant to expand unless confidence improves and employment costs stabilize.
Almost three-quarters of economists expect UK inflation to fall close to the Bank of England’s 2 percent target by the end of 2026, helped by lower energy bills and slower wage growth as the labor market cools.
Economists around the world were more optimistic. A majority expect global growth to be between 2% and 3%, with the US economy expected to outperform that of the UK and the euro zone. However, most expect China to miss its 5% growth target next year.
For entrepreneurs, particularly SMEs, the survey reinforces expectations of a challenging year ahead: weaker demand, cautious consumers and a more difficult employment environment.
While interest rate cuts could ease pressure on borrowing, economists warn that without a significant improvement in productivity, private investment and business confidence, the labor market is likely to remain fragile through 2026.
