Is AI really to blame for Britain’s rising unemployment?
Unemployment has risen to 5.2 per cent, the highest level since 2021, as the UK’s labour market continues to cool. But how much of that stagnation can reasonably be attributed to AI?
The latest Office for National Statistics (ONS) figures show the jobless rate climbed in the three months to December, while the number of pay-rolled employees fell by 134,000 year on year in January to 30.3m.
Employment among 16 to 64 year-olds slipped to 75 per cent, and redundancies are trending higher. Meanwhile, wage growth is also losing momentum, with annual growth in regular play slowing to 4.2 per cent.
Private sector pay has risen just 3.4 per cent, its weakest pace since 2020. And, adjusted for inflation, real wage growth stands at a marginal 0.5 per cent.
According to Liz McKeown, director of economic statistics at the ONS, payroll numbers had “fell further in the final quarter of the eyar, reflecting weak hiring activity”, while the ratio of unemployed people per vacancy has reached a new post-pandemic high.
The shift to automation
Businesses across the country are dealing with a sour cocktail of higher employer national insurance contributions, increased minimum wage and patchy economic growth.
Vacancy numbers have stabilised at the 726,000 mark, although they remain well below COVID-19 heights. Yet there are alarming signs that AI adoption is increasing influencing hiring decisions at the margin.
Research from Morgan Stanley recently found that UK firms using AI reported net job losses over the past year, with early-career positions particularly exposed.
A different survey by Helm saw 33 per cent of British scale-up founders expect AI-driven redundancies within the next year, while 58 peer cent are already slowing or pausing hiring altogether as automation soars.
Justin Moy, managing director at EHF Mortgages, said: “With the emergence of AI now able to undertake tasks at a fraction of the cost of humans, company owners are switching to cheaper alternatives and we will see more unemployment unless the tax burden is reduced significantly”.
AI as a factor, not a sole driver
Others argue the narrative risks overstating AI’s immediate impact on the labour market.
Shaun Modi, chief executive of CapitolAI, said: “AI perceptions are immature. Job loss narratives neglect the creation of new roles. The stock market changes without waiting to see the actual impact of new products.”
“We need to rely on past examples of huge tech transformation; the web, then app and mobile. AI will follow the pattern of, first, compression; then, business reinvention. Businesses should be making AI decisions based purely on their own operational needs, not market speculation and noise.”
Bank of England’s Andrew Bailey has also noted that, while vacancies in AI-exposed roles have fallen far more than their less exposed counterparts, we should avoid drawing “oversimplified conclusions” about tech’s long-term effects.
The evidence points to an incremental tumble within the market, where hiring freezes have overtaken mass layoffs, and where productivity gains in some areas are offset by role compression in others.
The technology is undoubtedly reshaping entry-level and routine work, and may be encouraging firms to pause recruitment altogether, while they experiment with automation.
Yet unemployment at 5.2 per cent remains well below the peaks of previous downturns, and employment overall is largely steady on an annual basis.
The harder question then, is not whether AI has single-handedly pushed joblessness higher – it has not – but whether the UK is prepared for a slower shift in how the labour market is structured.
If hiring continues to stall in AI-exposed sectors while retraining and investment lag behind, today’s cyclical cooling could turn into something more persistent for job hunters.