UK Unemployment Rises to Highest Level in Four Years as Wage Growth Cools

Unemployment in the UK has climbed to its highest level in nearly four years, according to the latest figures from the Office for National Statistics (ONS). The jobless rate rose to 4.6% in the three months to April, up from 4.5% in the previous period. This development marks the most significant rise in unemployment since the summer of 2021 and reflects a slowdown in the country’s labour market.

The ONS data also showed annual growth in regular wages had slowed to 5.2% from a revised 5.5%, falling below forecasts of 5.3%. Public sector pay is now increasing at a faster rate than wages in the private sector. Liz McKeown, ONS Director of Economic Statistics, noted the labour market is under strain, with the number of people on payrolls falling significantly. Many firms appear to be holding back on recruitment due to higher costs and broader economic uncertainty.

The number of workers on payrolls dropped by 109,000 in May alone, marking the fastest decline since the height of the Covid-19 pandemic. Vacancies also fell by 63,000 in the three months to May. This drop coincides with a £25 billion increase in employer national insurance contributions and a 6.7% rise in the national living wage, both introduced in April. Industries such as hospitality, leisure, and retail, which often face narrower profit margins, reported they were particularly impacted by these changes.

Suren Thiru, Economics Director at the Institute of Chartered Accountants in England and Wales, described the current labour market situation as challenging for businesses. With costs rising sharply, more job losses could follow, particularly in sectors unable to absorb additional tax and wage pressures. He added that these figures paint a bleak outlook for the UK economy as the government prepares for the widely anticipated autumn budget, which could introduce further tax hikes.

The Bank of England is closely monitoring the jobs market as it assesses whether to implement additional interest rate cuts following four earlier reductions, leaving rates at 4.25%. James Smith, Economist at ING, indicated weaker wage growth and an uptick in unemployment suggest the Bank could opt for further reductions in borrowing costs later in the year, with markets already pricing in the possibility of a cut in November.

Despite the rise in unemployment, economic inactivity among working-age adults – those neither employed nor actively seeking work – has fallen marginally, dropping by 0.2 points to 21.3%. Alison McGovern, the Employment Minister, emphasised the government’s efforts to support jobseekers amid the downturn. She highlighted initiatives designed to help more people secure employment while addressing rising living costs.

The broader implications of these figures remain a concern for policymakers as they balance measures to stabilise employment with ongoing efforts to tackle inflationary pressures.