UK unemployment rate to hit 5 per cent next year, EY predicts
The UK’s unemployment rate is set to rise to five per cent in the beginning of next year before falling back, a leading forecaster has said.
In its latest update on forecasts for UK growth, EY ITEM Club has suggested that the UK jobs market is set to see a further decline in the next few months.
The unemployment rate has crept up from 4.4 per cent to 4.8 per cent in the last 12 months.
Employers have said in various business surveys that the Chancellor’s £25bn hike to national insurance contributions (NICs) has cooled hiring levels and forced companies to cut payroll costs by making more staff redundant.
EY’s economist Matt Swannell has predicted that unemployment will continue to rise until the middle of next year before dropping back to 4.7 per cent in 2027.
Swannell also said growth this year is set to be higher as it predicted the rise in GDP to be 1.5 per cent due to “greater momentum than expected throughout this year”.
It maintained its 0.9 per cent growth forecast for 2026 and said there would be a 1.3 per cent rise in 2027.
In more positive news for growth hopes in the UK, business investment forecasts were upgraded to 3.7 per cent this year from 1.2 per cent.
It is expected to slow to 0.8 per cent next year as firms adjust to higher effective tariff rates, though EY had previously predicted zero growth in business investment at its last update in July.
Unemployment to hit UK economy
Inflation is also set to remain above the Bank of England’s target two per cent rate throughout the next 12 months.
Swannell also predicted that Rachel Reeves’ fiscal shortfall will be £30bn at this year’s Budget.
“Some of these changes [to taxes and spending] would need to be introduced almost immediately, although we can expect potential tax rises to be balanced with supply side growth measures,” he said.
“Nevertheless, the combination of potential tax rises, global trade disruption and high interest rates is still anticipated to put a brake on economic momentum and produce modest growth over the next year.”