Unemployment in the UK is set to peak this year at a higher rate than previously estimated, with a “worrying” increase in young people being out of work, the government’s official forecaster has said.

The Office for Budget Responsibility (OBR) said unemployment will peak at 5.3% this year, up from its previous forecast in November of 4.9%.

The figure would be the highest unemployment level since the final quarter of 2020, when the UK was in lockdown during the Covid pandemic. Excluding the Covid period, it will be the highest rate since September 2015.

The forecast came as the OBR downgraded the UK’s growth prospects for this year, with GDP expected to increase by 1.1% in 2026, down from 1.4% in 2025, before averaging 1.6% a year until 2030.

It said inflation would fall from 3.4% in 2025 to 2.3% in 2026 and 2% from 2027 to 2030.

However, the OBR acknowledged that its projections were subject to a significant amount of uncertainty due to the Iran war, which it said could have a “very significant” impact on UK economy.

“All the market developments over the last week or so have been in the direction of making the economic and fiscal outcomes more difficult,” said Prof David Miles, a member of the OBR’s budget responsibility committee. He said there would be a “material impact on inflation” if energy prices keep going up and stay there.

Miles said the rise in unemployment was being caused by firms cutting back on hiring rather than laying off staff. This has a bigger impact on people entering the workforce, he explained.

“You would expect it to have a disproportionate impact on people joining the labour force and trying to find a job for the first time, and that does seem to be happening. There’s worrying numbers on youth unemployment in particular,” he said.

The latest official figures from the Office for National Statistics (ONS) showed unemployment rose to 5.2% in the final quarter of 2025, the highest rate since the start of 2021. Young people have been bearing the brunt of this rise, with 16% of those aged 16-24 now unemployed, nearly an 11-year-high.

Many economists have said the rise in youth unemployment has been partly a result of the government attempting to equalise the national minimum wage for younger and older workers, as well as an increase in April last year to national insurance contributions for employers.

Miles agreed that this was affecting youth unemployment, saying the policies “disproportionately increase the cost of employing very young people”.

The OBR expects this weak level of hiring to continue in the near term, with unemployment also being higher than previously forecast in every year up to 2029, where it aligns with the November forecast of 4.2% before dropping to 4.1% in 2030.

The chancellor, Rachel Reeves, said the government was reforming apprenticeship schemes to prioritise young people, and would announce reforms in the coming weeks to “undo the Tory legacy of neglect and give young people the support and opportunity that they deserve”.

Alongside changes to its unemployment figures, the OBR added that the overall tax burden will increase from 36% of GDP to 38% by 2030, with personal taxes accounting for half the increase.

This would be the highest level on record, above the 37.2% tax burden at the end of the second world war, and almost 6% of GDP above the pre-pandemic level.

The official forecaster said this would partly be a result of the chancellor’s decision in her autumn budget to freeze income tax thresholds, meaning more people are pulled into paying tax for the first time or into higher tax bands due to inflation.

Tom Josephs, another member of the budget responsibility committee, said: “The increase in personal taxes is very much driven by the policy of freezing personal tax thresholds, which, combined with relatively strong nominal earnings pushes up the tax as a share of GDP … that counts for around two-thirds of the increase [in the tax burden].”

The OBR also said that changes to the way the ONS measures net inward migration – which has resulted in the statistics body recording a bigger rise in the number of British nationals emigrating – has also meant it has lowered its central forecast for overall net inward migration, with a reduction in the adult population of about 200,000 by 2030 compared with its November forecast.

Miles said this would have an impact on GDP growth for the UK as about 50% to 60% of that group leaving the country would have been working. “That reduces the level of the labour force in the UK, so that reduces the level of GDP,” he said.

However, he added that this would not affect GDP per person or damage the standard of living because, while GDP is a bit lower, the population is also a bit lower, “so it kind of evens out”.