The UK’s unemployment rate has climbed to 4.6%, marking its highest level since mid-2021. This comes alongside a noticeable slowdown in wage growth, sparking intense debate over the impact of recent government policies on the labour market.
According to data from the Office for National Statistics (ONS), the unemployment rate rose from 4.5% in the three months to March to 4.6% in the three months ending April. Meanwhile, average pay increased by 5.2% between February and April—a decline from 5.5% in the previous quarter and the smallest rise since late 2023. Public sector employees saw slightly higher wages gains at 5.6%, compared to 5.1% in the private sector.
Although wages continue to outpace inflation for most workers, suggesting increased real income, the drop in wage growth is a critical factor for the Bank of England as it contemplates future interest rate decisions. Alongside this, the estimated number of employees on payrolls decreased by 55,000 between March and April, with an even sharper decline of 109,000 in May, though the ONS advises caution as these figures may be revised.
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Job vacancies have also fallen, dropping by 63,000 to a total of 736,000 between March and May. ONS director of economic statistics Liz McKeown remarked on these trends, noting, “There continues to be weakening in the labour market, with the number of people on payroll falling notably. Feedback from our vacancies survey suggests some firms may be holding back from recruiting new workers or replacing people when they move on.”
Economic analysts attribute these changes in part to the Government’s recent fiscal decisions. Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, linked the slower pay growth and labour market strain to Chancellor Rachel Reeves’ increases in National Insurance contributions and the national minimum wage implemented earlier this year. Similarly, Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, described the period as ‘Awful April,’ noting the significant impact of rising employer costs on hiring and staffing.
Political voices have also weighed in. Liberal Democrat Treasury spokesperson Daisy Cooper criticized the Chancellor’s policies, stating, “The Chancellor’s pig’s ear of a jobs tax is crushing the growth potential of our high streets and small businesses, pushing people out of work, and ramping up the benefits bill.” Conversely, Pantheon Macroeconomics’ chief UK economist Rob Wood highlighted a more gradual easing in the labour market and pointed to a decline in redundancies, suggesting employers may be adjusting to the new tax landscape.
Unite general secretary Sharon Graham emphasized the need for comprehensive industrial strategy and public investment, warning that slow wage growth and economic pressures continue to undermine job creation.
As the UK grapples with these economic shifts, the Bank of England is expected to maintain its current base interest rate of 4.25%, with little indication of an imminent cut.
With the job market showing signs of strain and policy debate intensifying, how do you view the Chancellor’s role in the rising unemployment and shifting wage landscape? Share your thoughts in the comments below.