The UK jobs market showed further signs of strain, with official data revealing a rise in unemployment and a slowdown in wage growth for the three months leading to May.
The figures are likely to add pressure on the Bank of England ahead of its next interest rate decision in August.
According to the Office for National Statistics (ONS), the UK unemployment rate increased to 4.7%, up from 4.6% in April, marking the highest level since June 2021. Meanwhile, annual pay growth excluding bonuses eased from 5.3% to 5%, aligning with forecasts from City economists.
This weakening labour market comes amid broader economic challenges, including a 0.1% contraction in GDP for May following a 0.3% decline in April.
Although inflation remains above the Bank of England’s 2% target at 3.6%, the economic slowdown is prompting calls for a potential interest rate cut in August. Economists expect two rate cuts this year, starting next month.
The ongoing labour market strain is also creating difficulties for the new Chancellor, Rachel Reeves. As the Labour government prepares for its first autumn budget, rising joblessness and subdued economic growth make any potential tax increases riskier for overall recovery.
The number of job vacancies across the UK dropped to 727,000 in June, marking the 36th consecutive monthly decline—equivalent to three years of falling employer demand.
Economic analysts point to increased business costs, including higher national insurance contributions and an uplift in the minimum wage, as key factors driving both inflation and reduced hiring. While some firms are raising prices in response, others are cutting staff numbers, which is expected to eventually ease inflationary pressure.
Private sector wage growth in May stood at 3.7%, down from 4.3% in the previous quarter. Despite the slowdown, annual pay growth remains higher than pre-pandemic levels, and real wagesrose by 1.1% in the three months to May.
A separate report from the Recruitment and Employment Confederation and KPMG revealed that the number of people seeking new jobs in June rose at the fastest pace since the UK’s second COVID-19 lockdown in late 2020. Redundancies also climbed, with permanent job placements declining at the sharpest rate in nearly two years.
As the UK economy struggles with slow growth, persistent inflation, and weakening employment figures, attention turns to the Bank of England’s upcoming decision. Whether it will prioritise curbing inflation or supporting jobs and growth remains a pressing question for policymakers and businesses alike.
