The number of people out of work in the UK is expected to increase by 200,000 during 2026, according to the Confederation of British Industry (CBI). This rise would bring the total unemployment figure close to two million, the highest level seen in more than a decade.
The CBI warns that uncertainty caused by the recent conflict in the Middle East, linked to rising inflation and energy costs, is adding pressure on the economy. Reduced business investment and cautious consumer spending are cited as key reasons behind the weakening labour market.
CBI economists have adjusted their forecast, now predicting the unemployment rate could reach 5.5% this year, up from a prior estimate of 5%. Although they expect some improvement by 2027, with unemployment potentially falling back to 5.3%, the nearer-term outlook is less favourable.
This softening in the labour market coincides with the group’s downward revision of UK economic growth. Gross domestic product (GDP) growth is now forecast to slow from 1.4% last year to 1.1% in 2026, then 0.9% in 2027. These figures are lower than previous estimates and partly reflect the economic impact of rising global energy prices, supply chain interruptions, and general business uncertainty.
Louise Hellem, the CBI’s chief economist, explained that the global situation is amplifying an already sluggish UK economy. She noted: “What’s happening around the world is compounding the UK’s low-growth story. Last year it was tariffs, and this year it’s the conflict in the Middle East.”
Inflation is also expected to increase this year, with the consumer prices index (CPI) predicted to rise towards 4% by the end of 2026. This would reverse recent gains made in reducing inflation, which stood at 2.8% in April.
The CBI also said the Bank of England is likely to keep interest rates at the current 3.75% level for the remainder of the year, a factor that will influence household borrowing and mortgage costs but may limit further economic slowdown.
At the same time, contrasting data from recruitment firm ManpowerGroup provides a different picture of the job market. Their survey shows a rising number of employers planning to hire in the coming months. Around 37% of businesses surveyed stated they intend to recruit workers, a notable increase from previous quarters.
Michael Stull, UK managing director at ManpowerGroup, highlighted a shift in employer attitudes: “UK businesses are realising the need for people. Uncertainty has dominated the UK economy and job market for months, but that is not sustainable for businesses, employees or the consumer. That’s why we are seeing the needle shifting in terms of a willingness to hire.”
The uptick in hiring interest is reported across various sectors, with construction among them, and by region. The North West and North East of England show the strongest recruitment outlooks at 48% and 46% respectively.
For households, these developments signal a mixed-set of challenges and opportunities going forward. While some may face greater difficulty finding work due to the broader economic slowdown, others could benefit from growing recruitment demand in certain areas and industries.
It remains important for consumers and workers to monitor labour market trends, particularly as inflation and interest rates continue to influence living costs and job security. Understanding these shifts can help households better navigate their finances and employment prospects over the coming year.
