The unemployment rate rose to its highest point in the previous 2.5 years.
According to official estimates, the jobless rate in the United Kingdom has unexpectedly hit its highest point in 2.5 years. In the three months before April, the rate rose to 4.4%, the highest since September 2021.
Wage Growth Is Still Sturdy
Pay growth remains robust even in the face of rising unemployment. Ordinary earnings (excluding bonuses) expanded at an annual rate of 6%, the same as the previous month, so earnings have been growing faster than prices. Pay increased at an annual rate of 2.9% after accounting for inflation, the highest since August 2021. Economists had projected this salary increase, in part because of the 9.8% increase in the National Living salary for individuals over 21 in April, which brought it to £11.44 per hour.
Growing Inactivity in the Economy
The percentage of inactive people increased as well, hitting its highest point in over ten years. Over nine million people are classified as economically inactive, accounting for more than a fifth of the working-age population who do not actively seek employment. This trend has raised concerns over the impact of labor shortages on the UK economy. One crucial contributing cause has been the continuation of high rates of inactivity following the epidemic, in conjunction with an increase in chronic illness. Since 2022, long-term illness has been the main contributor to economic inactivity among individuals of working age.
Cooling of the Labor Market
According to the Office for National Statistics (ONS), there are indications of a cooling labor market, with fewer job openings and more unemployment. There were 904,000 open positions, a drop of 9,000. Recent employer payroll estimates, which show a 36,000 employment loss from March to April and more declines in May, are consistent with the ONS data.
Expert Opinions and Economic Consequences
The Bank of England will need to consider the most recent statistics when deciding whether to implement its first interest rate drop since the epidemic started. Next week, the bank will meet to discuss interest rates. Yael Selfin, chief economist at KPMG, predicts that this month’s rates won’t move, stating that the “mixed” data is unlikely to cause a rapid adjustment. She blamed a scarcity of positions and companies deferring recruiting choices for the decline in the demand for employees.
Although UK wage growth is still high, the cooling labor market is unlikely to significantly impact the Bank of England’s choices, according to Luke Bartholomew, the deputy chief economist at Aberdeen. If underlying inflation pressures continue to be reduced, he anticipates the first rate decrease in August.
Political Responses
There have been a range of political responses to the increase in unemployment. According to Work and Pensions Secretary Mel Stride, the unemployment rate had just marginally increased and was still relatively low. He emphasized the administration’s impressive employment record. Liz Kendall, the shadow work and pensions secretary for Labour, on the other hand, attacked the administration, saying the numbers were the result of 14 years of failure.
Sarah Olney, the Treasury spokesman for the Liberal Democrats, voiced her public anger with the economy’s instability under ervative rule. A Green Party spokesman criticized the administration’s performance by connecting growing unemployment with declining public services. Wales has the lowest employment rate and the worst degree of economic inactivity, according to Plaid Cymru, which also attacked Labour in Wales and the Westminster Conservative administration.
In summary
The unexpected increase in the unemployment rate, strong pay growth, and rising economic inactivity paint a complicated picture of the UK labor market. Decisions that the Bank of England will make in the near future will be widely monitored as the nation navigates these financial issues, with political leaders offering their opinions and economists offering differing predictions.
