Unemployment in the UK unexpectedly fell to 4.9% in the three months to February, the lowest level since last summer, according to official figures. The Office for National Statistics (ONS) reported a drop from 5.2% in the previous quarter, defying economists' expectations of no change. However, the fall was largely attributed to a rise in economic inactivity rather than increased employment, with the proportion of people not actively seeking work rising to 21%.
Pay growth excluding bonuses slowed to 3.6% year on year, the lowest since November 2020, while including bonuses it fell to 3.8%. After accounting for inflation, real wages grew by just 0.2%. The data does not fully reflect the impact of the Iran war, which began on 28 February, but more recent tax figures showed a decline of 11,000 in payroll employees in March, and February's estimate was revised down to a fall of 6,000.
Job vacancies also decreased, from 721,000 to 711,000 in March. The retail and wholesale sector shed 57,000 jobs in the three months to February. Ashley Webb, senior UK economist at Capital Economics, noted that the figures provided early signs that rising energy prices due to the Iran war were weighing on hiring plans and softening pay growth.
The Bank of England is expected to keep interest rates on hold as the labour market shows mixed signals. Private sector pay growth slowed to 3.2%, in line with the Bank's target for inflation at 2%. The ONS will release March inflation figures on Wednesday. Separate analysis from the Resolution Foundation warned that a worsening Middle East conflict could add £16bn to public borrowing by 2029-30, eroding most of the chancellor’s fiscal headroom.
