Jobless rate surges to highest since 2021 while pay growth eases sharply

Leader Live

3 days ago

The Office for National Statistics (ONS) said average regular earnings, excluding bonuses, fell sharply to 5.2% in the three months to April, from a revised 5.5% in the previous three months and the lowest since the third quarter of last year.
While this is still outstripping inflation, up by 2.1% with Consumer Prices Index inflation taken into account, it was lower than predicted, with most experts pencilling in a fall to 5.3%.
The rate of unemployment also jumped to 4.6% in the three months to April, up from 4.5% in the three months to March and the highest level since the three months to July 2021, although the ONS continues caution over the reliability of the statistic.
It coincided with firms facing a hike in national insurance contributions in April, which had been announced in October's budget, as well as a rise in the minimum wage.
The figures also showed vacancies tumbled by 63,000 to 736,000 in the three months to May, while payroll data revealed the biggest drop for five years last month, down 109,000 to 30.2 million.
This followed a revised 55,000 drop in payrolled workers between March and April.
Liz McKeown, ONS director of economic statistics, said: 'There continues to be weakening in the labour market, with the number of people on payroll falling notably.
'Feedback from our vacancies survey suggests some firms may be holding back from recruiting new workers or replacing people when they move on.'
There are fears that the 'Awful April' rise in staff costs for firms will send unemployment levels soaring, with some firms already moving to cut jobs ahead of the tax increase.
In February to April 2025, average weekly earnings were up 5.2% on the year excluding bonuses and 5.3% including bonuses. Regular pay grew fastest in the retail and hospitality sector.
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— Office for National Statistics (ONS) (@ONS) June 10, 2025
Paige Tao, economist at PwC UK, said: 'With rising national insurance costs, a higher minimum wage and escalating global tariffs all contributing to heightened cost pressures for employers, today's figures show that businesses are clearly feeling the squeeze.'
The Institute of Directors raised concerns that 'the business case for hiring new staff has been dealt a series of blows' by rising staff costs and upcoming changes to employment law.
Despite the fall in pay growth, economists said earnings so far remained robust – buoyed by the recent minimum wage rise.
The Bank of England will be weighing this up carefully against clear signs of a weakening jobs market, according to economists.
'The labour market looks in worse shape in May, which could tip the Monetary Policy Committee (MPC) into cutting rates again in August,' said Rob Wood at Pantheon Macroeconomics.
Matt Swannell, chief economic adviser to the EY Item Club, said he believed a cut in June remained unlikely, but that rates may come down again in August.
'Today's data is likely to reinforce the view that underlying inflationary pressures are cooling, but with pay growth still far above the rate consistent with inflation returning sustainably to 2%, most of the MPC will still want to act cautiously to guard against sticky inflation,' he said.