LONDON: British unemployment ​is likely to rise to its highest since 2015 this year, partly due to a rising minimum wage and last year's increase ⁠in a tax on employers, a leading think tank said on Wednesday.

The National Institute of Economic and Social Research forecast that the jobless ⁠rate ‌would average 5.4% this year, up from 4.8% in 2025 and higher than predicted by most forecasters.

"Part of this unemployment story in the UK is rising labour costs," NIESR economist Ben Caswell said.

An ⁠increasing minimum wage - which recent governments have lifted to two thirds of median earnings - and a jump in employers' social security contributions led to a 10.6% jump in the cost of hiring an entry-level worker last year, NIESR said.

"Industries which have a larger share of their workforce on the minimum wage have also experienced larger increases in ⁠their respective unemployment rates," Caswell said.

NIESR's analysis of ​official data also showed a rise in unemployment in the IT sector which it said might be a result of artificial intelligence reducing demand for ‍entry-level jobs.

Britain's minimum wage is due to rise by a further 4% in April, keeping it among the highest for a major economy relative to ​average earnings. Prime Minister Keir Starmer's government has said it wants to continue to phase out the lower minimum wage paid to 18-20 year-old workers.

However, not all the increase in unemployment was due to fewer job vacancies, NIESR said.

More people who previously were not in work or looking for work - and therefore were not considered to be unemployed - were now trying to find a job, after several years following the pandemic when so-called inactivity rates rose.

Barring a recession, the unemployment rate was likely to fall to 5% in 2028 or 2029, roughly its long-term sustainable rate outside of an economic boom, NIESR said.

Britain's official unemployment rate was its lowest in around 50 years at 3.8% in 2022 and 2019 although the survey used ⁠to calculate it is now in the process of being overhauled due to ‌quality issues.

NIESR nudged up its growth forecasts for 2026 and 2027 to 1.4% and 1.3% from forecasts of 1.2% for both years in November. It predicted two Bank of England interest rate cuts this year, lowering benchmark borrowing costs to ‌3.25% from 3.75%.

The ⁠BoE is due to publish updated economic forecasts on Thursday alongside its February monetary policy decision. Economists polled by Reuters do not ⁠expect a rate cut before March at the earliest. (Reporting by David Milliken; Editing by William Schomberg)