UK Unemployment Set to Exceed Pandemic Levels According to JP Morgan

UK unemployment is projected to surge to 5.5 per cent within months, surpassing the highest levels witnessed during the pandemic. This forecast comes from economists at JP Morgan, who predict that the jobless rate will reach two million in the first half of the year. This increase is attributed to businesses holding back on hiring due to Rachel Reeves’s £25 billion adjustment to employers’ National Insurance contributions, which took effect last April.

The anticipated 5.5 per cent unemployment rate marks a slight uptick from the peak of 5.3 per cent recorded in December 2020, equating to 1.8 million individuals without work. Allan Monks, the chief UK economist at JP Morgan, stated that despite the passage of over a year since the tax rise, the jobs market continues to stagnate.

The advance of artificial intelligence is also contributing to sluggish hiring rates. Sectors more vulnerable to AI adoption, such as business services and finance, remain relatively weak, limiting job creation. Monks expects that employer confidence may gradually return later this year, allowing for a resurgence in hiring. Should this not materialise, forecasts suggest that unemployment could climb towards 6 per cent by the end of the year.

As of the end of 2025, unemployment stood at 5.2 per cent, with the rate among individuals aged 16 to 24 rising to a troubling 16.1 per cent, marking its highest level in more than a decade. This demographic is particularly affected by the dual pressures of rising National Insurance contributions and an increase in the minimum wage. The National Institute of Economic and Social Research has warned that these factors may leave young individuals “priced out” of the job market.

The weak job market is likely to compel the Bank of England to accelerate the pace of interest rate cuts. Monks predicts two additional reductions by June, lowering the rate to 3.25 per cent from the current level of 3.75 per cent. Continued rises in unemployment could prompt further cuts in the second half of the year.

The Bank held interest rates steady in its latest meeting, which concluded with a narrow 5-4 vote. Alan Taylor, a member of the Bank’s rate-setting committee, expressed concern over the economy’s current trajectory, asserting that two to three more cuts are necessary to provide adequate support.

The Office for Budget Responsibility is expected to release its latest economic forecasts in the coming week. Nonetheless, the Chancellor is anticipated to respond to the forecasts without announcing significant tax or spending measures, thereby limiting the scope for relief for struggling young adults.