- Unemployment dips to 4.9 per cent, but hiring remains weak
- Economic inactivity rises sharply, led by students stepping back from work
- Wage growth slows but still adds to inflation concerns
The UK unemployment rate has fallen in a surprise, but the reality behind the numbers suggests the labour market may not be as strong as it appears. Fresh data from the Office for National Statistics shows the jobless rate dropped to 4.9 per cent in the three months to February, down from 5.2 per cent.
At first glance, that signals improvement. But a closer look at the UK labour market tells a more cautious story, with fewer people actively looking for work and hiring momentum starting to fade.
The drop in unemployment was not driven by companies taking on more workers. Instead, it came alongside a noticeable rise in economic inactivity. Around 169,000 more people moved out of work and were not actively seeking jobs during the period.
Students accounted for a significant share of this shift, particularly among those aged 16 to 64. As fewer people searched for jobs, they were no longer counted as unemployed, which helped push the headline rate lower.
Employment itself rose by just 24,000, a modest increase that points to weaker hiring demand. Early estimates also suggest the number of workers on payrolls slipped by 11,000 in March, adding to signs that the jobs market may be losing pace.
Vacancies have also fallen to 711,000 between January and March, the lowest level in nearly five years, indicating that opportunities are becoming more limited.
Even as hiring slows, wage growth remains relatively firm. Average weekly earnings excluding bonuses rose 3.6 per cent year-on-year in the three months to February, slightly above expectations, while total pay including bonuses increased 3.8 per cent.
That creates a tricky balance. Pay is still rising faster than inflation, but not by a wide margin, and the pace has begun to cool.
At the same time, the number of people claiming jobless benefits increased by 26,800 in March, higher than forecasts and up from the previous month. This suggests that some parts of the workforce are already feeling strain, even if the overall unemployment rate appears stable.
“Alongside falling unemployment, the number of people not actively seeking work increased,” an ONS official noted, as quoted in a news report, pointing to fewer students taking up jobs alongside their studies.
An uncertain outlook shaped by global pressures
The bigger concern may lie ahead. Much of the data was gathered before the escalation of tensions in West Asia, which has pushed up energy prices. For an economy like the UK, which relies heavily on imported energy, this could feed into both inflation and employment trends.
The International Monetary Fund has already trimmed its UK growth forecast to 0.8 per cent, down from 1.3 per cent earlier, reflecting the potential impact of the energy shock.
At the Bank of England, policymakers appear cautious. Governor Andrew Bailey has warned that the central bank needs to balance risks to growth and employment alongside inflation, reportedly said in remarks cited in reports. Chief economist Huw Pill has also stressed that keeping inflation under control remains the priority.
For now, the UK labour market is not weakening sharply. But it is no longer strengthening either. The latest figures suggest a shift — one where the headline numbers look steady, but the underlying signals point to a gradual cooling.
