Unemployment falls below 5% in surprise boost for Labour
Unemployment levels in the UK have unexpectedly fallen to their lowest level since last summer as labor market inactivity and vacancies decline.
Unemployment has been on the rise for the last 15 months, but after reaching 5.2 per cent in the three months to December 2025, the unemployment rate remained level in January before falling to 4.9 per cent in the three months to February 2026, according to figures from the Office for National Statistics (ONS).
Most economists expected the unemployment rate to remain unchanged, with expectations for a rise towards 5.5 percent later this year in part because firms expect to deal with uncertainty about rising costs caused by the Iran war.
With fewer unemployed but fewer jobs available, this means the ratio of people available per vacancy remains largely unchanged, while average earnings also rose 0.4 percentage points faster than Consumer Price Index (CPI) inflation; But this is slightly below forecasts, lower than the last reading, and is now the slowest rate of wage growth in more than two and a half years.
There were 711,000 vacancies in the three months to February; this was the lowest level since April 2021.
Liz McKeown, ONS director of economic statistics, said: “The number of workers on payroll has remained broadly stable in recent periods, reflecting continued weak recruitment.
“Vacancies fell to an almost five-year low, but the number of vacancies per unemployed person remained generally unchanged, with unemployment also falling.
“Alongside falling unemployment, the number of people not actively looking for work has also increased, with data showing that fewer students are looking for work alongside their studies.
“Regular wage growth slowed further, with growth at a five-year low.”
Analysts have warned that these figures, like recent economic data, do not take into account the effects of the Iran war and expect businesses to freeze hiring further.
“Unemployment surprised slightly, coming in at a slightly more acceptable level at 4.9 per cent, and annual wage growth coming in slightly lower, but remaining above inflation at 3.6 per cent for regular earnings excluding bonuses,” said Jonathan Raymond of Quilter Cheviot.
“Initial forecasts for March are also grim, with headcount expected to fall by a further 65,000 over the year, with further revisions likely.
“Given today’s data does not reflect the initial impact of the conflict in the Middle East, we can expect the labor market to soften further from now on. Businesses’ hiring plans had been largely put on hold since pre-budget and many will have quickly put the brakes on at the outbreak of war. Combined with other factors such as ongoing wage pressures, National Insurance increases and changes in business rates, it is difficult to see the labor market achieving a rapid recovery any time soon.”
The ONS said the fall in unemployment was due to inactivity, particularly among students, which rose by 70,000 in the quarter.
Vacancies also decreased by 29,000 in three months to 711,000, the lowest level since April 2021.
While the unemployment rate has fallen, the ONS has warned that the figures should be treated with caution. More timely data estimates the number of workers on UK payrolls fell by 11,000 month-on-month to 30.3 million in March, but this is subject to revision and follows a 6,000 fall in February.
The ONS had previously predicted an increase of 20,000 in February.
