The UK’s job market is showing signs of slowing down, with unemployment rising to 4.2% between December and February, its highest in six months. During the same period, the employment rate dipped, and economic inactivity—people not working or seeking employment—slightly increased.
Economists believe this could prompt the Bank of England to cut interest rates in the summer. Paul Dales, chief UK economist at Capital Economics, commented that with employment falling and the unemployment rate climbing, wage growth is likely to slow in the coming months, potentially leading to a rate cut in June.
The Office for National Statistics (ONS) noted that the UK’s unemployment rate rose from 3.9% in the previous three months, exceeding economists’ forecast of a 4% increase. This translates to 1.4 million unemployed people during this period.
While average wage growth (excluding bonuses) slightly dropped from 6.1% to 6%, it remained above forecasts. Real wages, when adjusted for inflation, increased by 1.9%—the highest rise since September 2021.
Chancellor Jeremy Hunt praised the growth in real wages and highlighted the government’s recent National Insurance cut, which came into effect in April. However, with income tax thresholds frozen until 2028, many workers may find themselves paying more tax as their wages increase.
Wage growth remains a critical factor in the Bank of England’s interest rate decisions. Rising wages can contribute to inflation, which the Bank aims to keep at 2%. While inflation has been easing, the Bank is wary of wage-driven inflation resurgence.
The ONS reported the employment rate fell to 74.5% between December and February, with 9.4 million people classified as economically inactive. This rise in inactivity was particularly notable among those aged 16 to 34, driven by students and those suffering from long-term illness.
Tracy Evans, a 59-year-old care assistant from Yorkshire, shared her personal story of long Covid. Forced to quit her job due to severe fatigue and brain fog, Evans tried returning to work but found her health deteriorating, ultimately leading her to give up the career she loved.
Labour’s Acting Shadow Work and Pensions Secretary Alison McGovern attributed the rise in long-term sickness to “Tory chaos,” while Liberal Democrat Treasury spokesperson Sarah Olney criticized the government’s handling of the NHS, stating it is hampering economic recovery.
Meanwhile, job vacancies fell by 13,000 between January and March, leaving 916,000 positions still needing to be filled—above pre-pandemic levels.
Though the ONS figures provide some insight, experts like Tony Wilson of the Institute for Employment Studies caution against reading too much into short-term changes, noting that the job market remains volatile.