Britain's unemployment rate has climbed to its highest point since the Covid-19 pandemic, with stark warnings that the situation could deteriorate further throughout 2026 as relentless business cost pressures trigger a wave of company closures.
Soaring Unemployment and the Looming Threat to Businesses
Official data from the Office for National Statistics (ONS) reveals that the unemployment rate reached 5.1 per cent in the three months to October 2025. This marks a significant increase from the 4.3 per cent recorded a year earlier, underscoring a worrying trend of rising joblessness across the year.
Economists and industry experts now fear this rate will continue to surge in 2026. A perfect storm of economic factors is squeezing companies from all sides, forcing many to consider shutting their doors permanently. These pressures include years of elevated interest rates, spiralling employment costs, persistently high energy bills, and inflation driving up the price of raw materials and services.
The 'Zombie Apocalypse' and Its Mixed Economic Impact
This harsh economic climate is predicted to "kill off" a significant number of so-called zombie companies. These are businesses that have been struggling to survive, unable to grow or adapt, but have managed to linger by earning just enough to cover their basic costs.
Ruth Curtice, chief executive of the Resolution Foundation, identified "early and encouraging signs of a mild zombie apocalypse." She explained that the combination of higher interest rates and rising minimum wages is finally pushing unproductive firms to close, potentially making way for newer, more innovative enterprises. This shift could, in the long term, lead to a productivity upturn and stronger economic conditions.
However, Curtice cautioned that the immediate consequence will be painful. "The short-term impact could be job displacement and higher unemployment," she stated, urging policymakers to intensify efforts to address the looming crisis.
Forecasts and the Disproportionate Impact on Youth
A recent survey highlighted by The Times indicates that two-thirds (67 per cent) of economists believe unemployment will sit between 5 and 5.5 per cent by the end of 2026. If the rate reaches the top of that range, it would represent the highest level since 2015.
The job market contraction has been exacerbated by widespread hiring freezes. Many firms paused or cancelled recruitment plans in late 2025, citing uncertainty around Chancellor Rachel Reeves's Budget and the escalating costs associated with taking on new staff. This followed earlier increases to National Insurance contributions and the national minimum wage.
Young people are expected to bear the brunt of the employment downturn. ONS figures show the number of unemployed 18 to 24-year-olds rose by 85,000 in the three months to October, the largest quarterly increase in three years. Furthermore, government plans to create a single adult rate for the cost of employment, abolishing the lower minimum wage for 18-20-year-olds, have raised concerns. Business leaders suggest this could disincentivise hiring inexperienced young people, as they would no longer be a cheaper alternative to older workers.
