Quarter of a million people could lose their jobs in the UK by next year, report says

Here's when UK’s jobless rate will peak

As per a late EY Item Club report, it is predicted that the economy will flatline in the second and third quarters.

This is expected to leave gross domestic product (GDP) rising by 0.7% over the year as a whole, down from 1.4% expansion in 2025.

The EY Item Club warned that while the economy will “flirt with recession”, it will also see higher oil and energy prices weigh on activity and the jobs market suffer its “biggest hit since the pandemic”.

However, despite soaring inflation caused by the war, it predicted that interest rates will remain on hold throughout 2026.

“Spiralling energy costs and disruption to supply chains will push the UK to the brink of a technical recession in the middle of this year. Consumers’ spending power will be squeezed, while more expensive financing arrangements and a less certain global economic backdrop will pour cold water on companies’ investment plans”, Matt Swannell, chief economic adviser to the EY Item Club, said.

As per the independent forecasting group, the UK’s jobless rate will peak at 5.8% by the middle of 2027, with almost 250,000 more people without a job.

Previously, a report from the International Monetary Fund (IMF) last week showed UK facing the biggest downgrade to growth among the G7 group of countries, with 0.8% forecast for 2026, down sharply from the 1.3% predicted in January.

Meanwhile, recent figures showed the UK economy had stronger-than-first thought momentum before the Iran war impact.

Data showed GDP grew by 0.5% month-on-month in February, which is the fastest expansion since January 2024.

Inflation is set to soar to almost 4% in the second half of 2026 – nearly double the Bank’s 2% target – but that Monetary Policy Committee (MPC) policymakers will hold off from knee-jerk hikes to interest rates, the EY Item Club.

“We don’t expect the Bank of England to repeat the 2022 playbook and hike interest rates as energy prices rise. This time policy is already restrictive, and a more fragile economy means that businesses will find it harder to pass on higher costs to the consumer”, Swannell said.

“Instead, the MPC can stand pat as it waits for inflation to fall back before it cuts interest rates a couple more times in the middle of next year.”

New official figures show UK unemployment has remained at its highest rate in five years.

The unemployment rate was 5.2% in the three months to January, according to the Office for National Statistics (ONS).