The UK unemployment rate has climbed to its highest level since 2021, reflecting a clear slowdown in the labour market, according to the latest figures from the Office for National Statistics (ONS).
Between January and March 2025, the unemployment rate rose to 4.5%, up 0.2 percentage points from the previous quarter.
This marks the steepest level of joblessness since the summer of 2021 and adds to growing evidence of economic cooling amid rising business costs.
The data was gathered using the ONS’s Labour Force Survey, which has recently come under fire for declining response rates.
However, the agency claims to have seen “clear improvement” in the survey’s reliability, publishing an update alongside Tuesday’s report.
Job Vacancies and Wage Growth Decline
The number of job vacancies fell sharply in the three months to April, dropping by 5.3% to 761,000 – a year-on-year reduction of 131,000. The construction industry saw the biggest drop, signalling reduced demand across key sectors.
Meanwhile, wage growth also lost momentum, with regular pay rising 5.6% in the three months to March, down from 5.9% previously. While still historically strong, this modest deceleration may ease pressure on the Bank of England, which recently cut interest rates to 4.25%.
Economist Thomas Pugh of RSM UK commented: “The labour market is clearly cooling, which should help slow wage growth over the year. But it’s far from collapsing – strong pay rises are still a concern for policymakers eyeing future rate decisions.”
Employment Falls in Key Sectors
The number of payrolled jobs also dropped by 47,000 between February and March – a 0.2% decline. While the overall employment rate remained steady at 75%, losses were most pronounced in retail and hospitality, according to Stephen Evans of the Learning and Work Institute.
“These sectors have also seen some of the sharpest pay rises, driven by the recent hike in the national living wage,” Evans noted, adding that time will tell whether this trend signals a short-term adjustment or a deeper shift.
The economic inactivity rate—which includes people neither in work nor looking for work—fell slightly to 21.4%, but still sits above pre-pandemic levels, highlighting a persistent challenge for government and business alike.
Rising Business Costs and Policy Pressure
The government’s recent rise in employer national insurance contributions (NICs) by £25 billion, paired with a 6.7% increase in the national living wage, has intensified cost pressures on employers.
Some business groups have raised concerns over affordability and the potential for further job cuts.
Michael Stull, Managing Director at ManpowerGroup UK, said: “The latest data reflects the uncertainty many employers are grappling with amid ongoing national reforms and global instability. Confidence remains muted.”
The ONS is currently under independent review over data quality concerns, particularly around the Labour Force Survey. National statistician Ian Diamond resigned last week citing health reasons.
