Unemployment in the UK rose to 4.7% in May, the highest level in four years, as the jobs market continues to cool amid rising costs and economic uncertainty. Wage growth slowed for a third consecutive month, while employers cut back on hiring, with payroll numbers falling by 41,000 in June.
Despite the slowdown, economists stress that the market is not collapsing. Wage growth remains resilient at 5% annually, well above inflation, and redundancy rates, while elevated, are not surging. Recruitment firm ManpowerGroup UK noted 'signs of returning confidence' among businesses.
The cooling is partly attributed to Chancellor Rachel Reeves's autumn budget, which raised employer national insurance contributions by £25bn and increased the national living wage by 6.7%. Business groups warned these measures would lead to job cuts and higher prices, a trend evident in June's inflation rise to 3.6%.
Job vacancies are falling most in sectors exposed to higher costs, such as hospitality and retail. There are also concerns about firms using artificial intelligence instead of hiring humans. However, both unemployment and employment rose simultaneously, partly due to more people leaving economic inactivity.
The Bank of England faces a tough decision at its 7 August meeting. With inflation above target and wage growth strong, further rate cuts are at risk. Most economists predict a quarter-point cut from the current 4.25% base rate, which would offer some relief to the government ahead of a tricky autumn budget.
