Unemployment is set to soar to 5.3% this year, with a 'disturbing' rise in young joblessness, according to the government's official forecaster. This marks a significant increase from the previous forecast of 4.9% in November, and is the highest unemployment rate since the final quarter of 2020, when the UK was in lockdown during the Covid pandemic. Excluding the Covid period, it will be the highest rate since September 2015. The forecast comes as the OBR downgrades the UK's growth prospects, with GDP expected to increase by 1.1% in 2026, down from 1.4% in 2025, before averaging 1.6% a year until 2030. Inflation is expected to fall from 3.4% in 2025 to 2.3% in 2026 and 2% from 2027 to 2030. However, the OBR acknowledges that its projections are subject to significant uncertainty due 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, warns that market developments over the last week have made economic and fiscal outcomes more challenging. He highlights that rising energy prices will have a 'material impact on inflation' if they persist. The rise in unemployment is attributed to firms cutting back on hiring rather than layoffs, disproportionately affecting those entering the workforce. The latest figures from the ONS show unemployment rose to 5.2% in the final quarter of 2025, the highest rate since 2021. Young people, aged 16-24, are bearing the brunt of this rise, with 16% now unemployed, nearly an 11-year high. Many economists link the youth unemployment surge to the government's wage equalization policies and increased national insurance contributions for employers. Prof Miles agrees, emphasizing the policies' disproportionate impact on young workers. The OBR predicts weak hiring will persist, with unemployment higher than forecast until 2029, before dropping to 4.1% in 2030. The Chancellor, Rachel Reeves, announces reforms to apprenticeship schemes, prioritizing young people, and plans to address the 'Tory legacy of neglect' in the coming weeks. The overall tax burden is expected to increase from 36% of GDP to 38% by 2030, with personal taxes accounting for half the increase. This would be the highest tax burden on record, surpassing the level at the end of World War II, and nearly 6% of GDP above the pre-pandemic level. The OBR attributes this to the Chancellor's decision to freeze income tax thresholds, pushing more people into higher tax bands due to inflation. Tom Josephs, another committee member, explains that the increase in personal taxes is driven by the policy of freezing tax thresholds, combined with strong nominal earnings, pushing up the tax as a share of GDP. The OBR also notes that changes in how the ONS measures net inward migration have led to a lower forecast for overall net inward migration, with a reduction in the adult population by 2030. Prof Miles suggests this will impact UK GDP growth, as the leaving group includes many workers, reducing the labor force and GDP.
