Unemployment has risen to its highest level for five years and wage growth has slowed again as the UK jobs market continues to come under pressure, according to official figures.
The Office for National Statistics (ONS) said the rate of unemployment lifted to 5.2% in the three months to December, up from 5.1% in the three months to November.
This was the highest since the three months to January 2021 and the highest for over a decade outside of the pandemic era.
Most economists had expected unemployment to remain at 5.1% in the latest quarter – but data from HMRC suggests further redundancies are already in the works, while firms responding to industry research frequently cite limited hiring plans.
Sanjay Raja, chief UK economist at Deutsche Bank, said “the data suggests there may be a little more room to go before we hit the cyclical peak in the unemployment rate” and added that the numbers would add expectation to the Bank of England cutting interest rates.
Next month’s unemployment data from the ONS is due out on 19 March – the same date the BoE’s Monetary Policy Committee are due to vote on potentially lowering rates from 3.75 per cent. Further key data, with regards to a potential cut, comes on 18 February with the latest inflation figures.
The ONS added that regular wage growth fell back once again, to 4.2% in the three months to December, against a downwardly-revised 4.4% in the three months to November, and was 0.8% higher after taking Consumer Prices Index inflation into account. Private sector pay is now growing only in line with inflation.
But there was a welcome increase in vacancies, up by 2,000 quarter-on-quarter to 726,000 in the three months to January – though with the rising unemployment rate, it means there are now more active candidates per vacancy.
Liz McKeown, ONS director of economic statistics, said the data showed “more people who were out of work are now actively looking for a job”.
She added: “The number of vacancies has remained broadly stable since the middle of last year.
“Alongside rising unemployment this means that the number of unemployed people per vacancy has increased, reaching a new post-pandemic high.
“Meanwhile, redundancies are also showing an upward trend.”
All now may hinge on tomorrow’s inflation figures, says Thomas Pugh, chief economist at tax and consulting firm RSM UK.
“December’s rising unemployment rate, slowing private wage growth and falling payroll numbers in January all point towards a rate cut in March. A soft inflation number on Thursday is all it will take to seal the deal.
“Overall, today’s data suggests the labour market was still weak at the end of last year. That strongly supports a rate cut as soon as next month and probably one more in the summer. But the Bank will still have to move cautiously amid sticky regular pay growth, especially as interest rates approach neutral.”
As for the wider employment market, job site Indeed’s senior economist Jack Kennedy says firms are still holding back on hiring more people, especially at the junior level.
“Employer caution is widespread across sectors. Businesses are essentially in wait-and-see mode, reluctant to commit to expanding their workforce until they have greater clarity on the economic outlook,” he said.
“What’s particularly concerning is the weakness at entry level. Employers are navigating a difficult environment – higher payroll costs, fragile business confidence and persistent uncertainty around growth – and they’re responding by pulling back on junior hiring. This makes it harder for younger workers to get that crucial first foot on the career ladder, and we’re seeing this reflected in rising youth unemployment. This isn’t just a short-term problem; delayed career starts can have lasting effects on earnings and progression.”
