UK Job Market Weakens as Unemployment Rises and Pay Growth Slows
Work News | New Stardom
Photo by Sandro Cenni
The UK labour market is showing fresh signs of strain as pay growth decelerates and unemployment reaches its highest point since mid-2021, according to new data released Tuesday by the Office for National Statistics (ONS). The figures reflect broader uncertainty as employers scale back hiring amid rising business costs and softening economic confidence.
Between February and April, wage growth excluding bonuses dropped to 5.2%, its weakest level since last September. At the same time, the unemployment rate ticked up to 4.6%, a figure not seen since the three months to May 2021. Employers appear to be reacting cautiously to higher costs, including a £25 billion rise in National Insurance contributions and the implementation of a 6.7% increase in the minimum wage this April.
Payroll data suggests the situation may have worsened in May, with early estimates indicating a drop of 109,000 employees, the steepest fall since the pandemic-era collapse in May 2020.
Vacancies, another key measure of labour demand, fell by 63,000 over the quarter to 736,000, marking the lowest level in four years. The ONS noted that some firms are holding off on recruitment or not replacing departing staff, citing cost pressures and uncertainty.
This cooling of the labour market is likely to influence the Bank of England’s approach to interest rates. While no rate cut is expected at its June 19 meeting, analysts say the data strengthens the case for reductions in August and November.
Though the Bank has maintained a cautious stance, Governor Andrew Bailey acknowledged last week that pay pressures are easing. “That is going to be a crucial judgement going forwards,” he told MPs.
The data has also prompted political reactions. Labour officials pointed to the overall rise in employment since last year’s election win, while Conservatives and Liberal Democrats criticised the so-called "jobs tax," warning it could hamper small businesses and high street recovery.
As the UK economy enters a new phase of wage moderation and employer restraint, the job market’s direction over the next quarter could prove pivotal for both workers and policymakers.
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