Joblessness is set to hit its highest level in more than a decade as unemployment looks set to increase by 400,000 under the Labour government, according to a top business body.

The British Chambers of Commerce (BCC) warns of a softening labour market, driven by falling vacancies and economic uncertainty, with unemployment projected to rise over the next couple of years before recovering in 2028.

The overall rate is forecast to rise to 5.2 per cent in 2026 and peak at 5.5 per cent in 2027, driven by a decline in job vacancies. Based on these figures, over 418,000 more people will be unemployed by the end of 2028 than at the end of 2024.

The Office for National Statistics (ONS) said the UK unemployment rate was 4 per cent in the three months to March 2026, before dropping to 4.9 per cent in April.

Youth employment is a major concern, as entry-level opportunities are being squeezed by rising labour costs and rapid AI adoption, which continues to erode these jobs.

The BCC data projected an employment rate of 16.9 per cent in 2026, rising to 17.8 per cent in 2027 for the junior end of the workforce, the highest rate since 2013.

“With youth unemployment approaching 18 per cent by mid-2027, the UK risks weakening the skills pipeline it needs for the next economy,” stated David Bharier, deputy director economics and insights at the BCC.

He added: “The UK is not in recession but the economy remains trapped in a cycle where each recovery is interrupted before gaining traction, and firms go back on the defensive.”

This comes as young people who are out of education, employment or training (known as ‘Neets’) cost the UK economy up to £125bn a year, warned former Blair-era health secretary Alan Milburn.

Workers rights raise concerns

Labour’s Employment Rights Act has sparked significant concern among business leaders and analysts over rising costs and a potential stall in hiring.

Rising wages have been blamed by some for rising joblessness, as minimum pay for 21 to 22-year-olds has risen by 33 per cent over the past three years, bringing it into line with the £12.71 hourly national living wage paid to older workers.

The rate for 18 to 20-year-olds has increased by 46 per cent to £10 an hour and is set to rise again to £10.85 in April.

Additionally, businesses highlighted the hike in employer National Insurance contributions (NICs) as a significant burden on those already facing economic pressures.