# Wage growth falls as unemployment stays at highest level for nearly five years

By Sarah Coles — 2026-01-20

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Unemployment has been climbing fairly steadily for the past three years and has hit 5.1%. It’s a substantial rise since the recent low of 3.6% in summer 2022 and only just shy of the pandemic peak of 5.3%. And while pay growth looks robust for those still in work, things aren’t quite as strong as they seem.

“On the face of it, it’s not all bad news: employment is up over the year, jobs vacancies have risen very slightly over the month, and wages are up 4.7% in a year. However, look a bit closer and real weakness emerges. Vacancies are down 8.6% in a year, while unemployment and redundancies are rising. As a result, there were 2.5 unemployed people per vacancy – up from 2.4 in the previous quarter and 1.9 a year ago. Meanwhile, wages are up just 1.1% after inflation – and this is likely to fall.

“There’s a huge difference between wage inflation in the public sector – at 7.9% and the private sector – at 3.6%. This owes much to the fact that some public sector pay rises were paid earlier in 2025 than a year earlier, which will even out in the next few months, automatically bringing the rate down. Once that’s worked its way out of the figures, wage rises will look decidedly less robust. Given they’re currently only 1.1% after inflation, this will be one to watch.

“There are all sorts of reasons for weakness in the jobs market. Economic growth may have come in marginally higher than expected in November – but over the three months it was still up just 0.1%. Businesses are likely to be wary about bringing on new staff at a time when it looks like demand will remain sluggish. Add to that the uncertainty driven by months of pre-Budget speculation, and it’s easy to see why hiring managers might be sitting on their hands.

“The only plus side to this is that wage rises are unlikely to worry the Bank of England, or persuade it away from a rate cutting path in the coming months.
Unemployment has been rising for years now, and with more people chasing each job, it can take longer to find a new role. This can have a devastating impact on your financial resilience. The HL Savings and Resilience Barometer shows that, on average, households where the head is unemployed don’t have anything left at the end of the month. Overall, households have enough cash to cover more than three months of their essential spending. Among unemployed households, this falls to less than a week.

“Some people will have the cushion of a redundancy payment when they lose work, but there’s a risk this may not last as long as your period of unemployment. It means that anything you can build while you’re working could be a lifeline later. It’s worth revisiting your emergency savings as soon as possible. Ideally you should have enough cash to cover 3-6 months’ worth of essential spending – in a competitive easy access savings account. This will help keep you on track if you are out of work for a period. At the moment, the HL Barometer shows just over half of people are in this position (52%), so it’s worth checking you’re one of them.”

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