Unemployment is on the rise in London. Should the rest of the UK be worried?

Growing up in Newcastle, I quickly got used to the narrative that London leads the UK economy. And during the early years of my career in public policy it became ever clearer that we still live in one of the most politically and economically centralised countries in the western world. Fairly or unfairly, London remains the benchmark against which other parts of the UK tend to be measured.

Which is why the latest labour market figures gave me pause.

Recent data from the Office for National Statistics suggests Greater London’s unemployment rate is now 7.2%, two percentage points above the national average. That is a level last seen during the early months of the Covid-19 pandemic. At the same time, London’s employment rate has slipped to 74%, below the UK average of 75.1%.

On the face of it, that looks like a worrying reversal for a city that has long been associated with strong job creation. But before sounding the alarm too loudly, some caution is needed. Local labour market data in the UK is often based on relatively small sample sizes, which can make figures volatile from quarter to quarter. It would be a mistake to over-interpret any single data point, or to assume London’s labour market has lost its dynamism overnight.

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Yet when we look more closely at what could be driving these changes, there are a number of areas that merit further exploration.

At the national level, the data suggests that rising unemployment over the past year has largely been driven by people moving out of economic inactivity – such as students or people with long-term health conditions – and starting to look for work again. While in the short-term it means the unemployment figures tick upwards, such a shift could provide an opportunity to support more of those previously outside of the labour market into sustained employment in the future.

In London, however, the story appears different. Here, employment seems to be contracting at the same time as unemployment is rising. That combination potentially points to more Londoners actually losing their jobs. And when we look beyond the headline statistics, there are several signals policymakers should be paying close attention to as 2026 unfolds.

Younger workers seem to be bearing the brunt of recent increases in unemployment. Given the scale and diversity of the London economy, it should be a fantastic place for a young person to begin and progress through the early part of their career. And yet for people aged 16 to 34, it seems that finding secure work is becoming more difficult, while the cost of housing and everyday essentials continues to rise.

We know that spells of unemployment early in working life can have long-term scarring effects on earnings, wellbeing and career prospects – so this recent rise should concern anyone who cares about London’s future workforce.

Redundancies in the capital were also higher than the national average towards the end of 2025, suggesting some employers are already cutting back. And while London is often spoken about as a single labour market, conditions vary sharply between boroughs. 

Analysis by the Work Foundation shows that hiring has slowed noticeably in many outer London boroughs. This is particularly the case in health, social care and retail – sectors that often underpin local economies and provide employment for thousands of people. Where vacancy growth has been strongest, it has in part been concentrated in more precarious sectors such as hospitality, potentially reflecting short-term or insecure opportunities rather than stable jobs people can build a life around.

There is also a wider context to consider. London’s status as a global city can make it sensitive to international turbulence – from weaker global demand to ongoing trade uncertainty. And while the strength of the London economy has tended to make it more resilient to economic shocks than other parts of the country, there have been instances where the capital has felt the effects of economic slowdowns before other regions.

This all speaks to the complexity of London’s labour market. The capital is home to global financial institutions, fast-growing tech firms and major arms of government – but it also contains stubborn pockets of deprivation, in-work poverty and insecure employment.

Ultimately, we need to see how these indicators shift over the coming months before drawing firm conclusions. But what’s already clear is that the government cannot afford complacency in 2026. Unemployment has been creeping up nationally for over a year, and a weakening jobs market in London would have national implications.

Recently launched local Trailblazer programmes to boost employment and strengthen pathways to work for young people across the capital offer the opportunity to address some of these concerns, providing they continue to receive investment and support throughout 2026 and beyond.

And more broadly, ministers must continue to back the Mayor of London and other local leaders as they work together with employers to support sustainable growth and expand access to secure, flexible work in the capital – ensuring that opportunities reach every community, not just those already doing well.

Ben Harrison is director of Work Foundation at Lancaster University.

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