UK unemployment to rise to 5.4% by 2026 due to higher labor costs and AI, but may ease by 2028–2029.

Britain’s unemployment rate is projected to rise to 5.4% in 2026, the highest since 2015, driven by higher minimum wages and increased employer social security contributions that raised hiring costs for entry-level workers by 10.6% last year. Industries with large minimum wage workforces are seeing sharper job losses, and AI adoption may be reducing demand for entry-level roles, particularly in IT. Despite a growing labor force, unemployment is expected to ease to around 5% by 2028 or 2029 if the economy avoids recession. NIESR upgraded its growth forecast to 1.4% in 2026 and 1.3% in 2027, and predicts two Bank of England rate cuts this year, lowering the benchmark rate to 3.25%.