UK unemployment rate hits five-year high of 5.2% as wage growth cools | Economics
Unemployment in the UK has risen to 5.2%, the highest level in nearly five years, while wage growth continues to slow, raising the prospect of a fresh cut in interest rates in the spring.
The Office for National Statistics (ONS) said the unemployment rate was 5.2% in the three months to the end of December, the highest rate since the quarter to January 2021. This was in line with economists’ expectations and rose from 5.1% in the three months to November.
Unemployment in the UK has risen steadily since 2022, and businesses have complained that tax increases in Rachel Reeves’ last two budgets have made this worse, while increases in national insurance contributions and the minimum wage have caused particular problems.
In the three months to December, wages excluding bonuses in Great Britain increased by 4.2%, down by 4.4% compared to the previous month.
While wages in the private sector increased by 3.4%, the lowest level in the last five years, wages in the public sector increased by 7.2%. After adjusting for inflation, annual wages excluding bonuses rose by just 0.8% in the October-December period; this is the lowest rate since August 2023.
The number of people on the company’s payrolls also continued to decline; down 134,000 from a year ago and 46,000 in the quarter. On a monthly basis, payrolls fell by 11,000 in January.
However, the sharp monthly decline reported in December compared to November was revised upwards by the ONS to a decline of just 6,000 from an initial forecast of a decline of 43,000.
Liz McKeown, ONS director of economic statistics, said: “Although largely unchanged last month, the number of workers on payroll fell further in the final quarter of the year, reflecting weak recruitment activity.
“The unemployment rate has also increased over the same period, with data showing that more people who were unemployed are now actively looking for work.”
Peter Dixon, senior economist at the National Institute of Economic and Social Research, said: “Beneath the surface there are indications that workers, particularly young workers, are being priced out of the market.
“The 33% increase in the minimum wage in the last two years increased the unemployment rate between the ages of 18-24 by more than two points, to 14%.”
This is also the highest rate in five years (or almost 11 years excluding the pandemic) amid concerns that Britain is falling out of global rankings for youth employment.
Figures show the Bank of England is likely to make another interest rate cut by the spring as inflationary pressures such as higher wage growth appear to be easing.
The bank predicts that the unemployment rate will rise to 5.3% this year and that wage growth will slow to 3.25% by the end of the year from 3.4% last year as inflation declines. The bank kept interest rates steady at 3.75% at its last meeting earlier this month.
Paul Dales, chief UK economist at Capital Economics, said: “The lack of a green shoot in the labor market recovery and a further decline in wage growth supports the idea that the Bank of England has at least a few more rate cuts in the pipeline, with the next rate cut more likely to come in March rather than April.”
Inflation, which measures the pace of price increases, rose to 3.4% in December from 3.2% in the previous month. The ONS will publish January data on Wednesday.
Recent business surveys suggested the job market improved in January as companies renewed their hiring plans as budget uncertainty eased in late November.
A. Report from KPMG and RECThe recruitment body reported the smallest fall in permanent staff placements in 18 months. financial managers survey The Bank of England said firms expect to increase employment for the first time in five months this year.
