Startups creating fewer jobs as UK struggles with unemployment

The UK is experiencing an unemployment crisis. The UK unemployment rate has hit a near five-year high in the last three months of 2025, climbing to 5.2%, according to the latest figures from the Office for National Statistics.

However, the UK is experiencing a startup boom, with Britons founding new companies at the fastest rate in two years last quarter, which would usually mean more jobs. but figures have found that these startups are creating just 2.7 jobs on average, according to Bloomberg.

Unfortunately, AI is replacing admin, support, and junior staff. This reflects in the statistics, with the youth (16-24) unemployment rate sitting at 16.1%, the highest figure in over a decade, and 4.7% for 25-34s, the highest since 2017. Changes in employment laws, such as higher minimum wages and new job protections, are making founders less eager to hire, and more inclined to use AI tools to fill these gaps within their businesses.

Graduate and entry-level jobs have been the hardest-hit, with less than 10,000 graduate roles posted last month, the first time that threshold has been breached since records began in 2016. Graduate vacancies have fallen 45% over the past year, and entry level roles are down 4.4%.

According to research from Helm, one of Britain’s largest entrepreneur networks, when founders were asked “Are you delaying or reducing new hires as a result of increased AI adoption?”, 58% responded ‘yes’, 35% said ‘no’, and 7% responded ‘don’t know’. However, most stay strong in their belief that AI won’t lead to job cuts in their businesses in the next 12 months. Whilst 33% of founders responded yes, 64% said no, with 3% not sure.

Even looking towards big tech, we have seen large corporates cutting jobs in favour of AI. In July 2025, Microsoft confirmed that 9,000 workers would be laid off, following plans to invest heavily in AI, and spending $80 billion in huge data centres. In January 2026, Amazon announced it was laying off 16,000 employees, on top of the 14,000 it laid off in October 2025. CEO Andy Jassy has been outspoken about AI’s impact at the company. In 2025, he wrote in a blog post to employees, stating: “As we roll out more Generative AI and agents, it should change the way our work is done. We will need fewer people doing some of the jobs that are being done today, and more people doing other types of jobs. It’s hard to know exactly where this nets out over time, but in the next few years, we expect that this will reduce our total corporate workforce as we get efficiency gains from using AI extensively across the company.”

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Now it seems that this sentiment is being adopted by startups, not just big corporates. AI is completely changing the way they work, and why they can hire so few employees. Kevin Fitzgerald, Managing Director UK, Employment Hero, explained: “Much of the conversation around AI still centres on job losses and fear. The reality is far more nuanced. I speak to small business founders every day and what they tell me isn’t that they’re rushing to replace people – it’s that they’re struggling to find people who know how to use AI. Most of them are thinking carefully about the return on investment and rethinking roles to make sure AI is incorporated.”

It seems as though startups aren’t willing to hire as there are skills gaps prevalent in job seekers. In January 2026, the UK government announced an expansion of its national AI programme, unlocking free training opportunities designed to help upskill up to 10 million people develop the digital capabilities needed to thrive in an AI-enabled economy by 2030. With startups claiming a lack of skilled workforce in the technology, and as the technology works continues to develop at a rapid pace, it will be interesting to see whether this upskilling will have an impact on employment statistics.