UK unemployment rises unexpectedly as economic outlook weighs on jobs market

The UK unemployment rate has edged up unexpectedly and vacancies have fallen for the ninth straight month in a sign that the uncertain economic outlook is impacting Britain’s jobs market.

The latest official figures showed a surprise rise in the unemployment rate to 3.8% in the three months to February, up from 3.7% in the previous three months and the highest since the second quarter of 2022.

Most economists had expected the rate to remain unchanged.

The data from the Office for National Statistics (ONS) also revealed that vacancies fell by another 47,000 to 1.1 million in the three months to March.

The ONS said firms “continue to cite economic pressures as a factor in holding back on recruitment”, though it added that vacancies remain at “very high levels”.

The increase in the unemployment rate came as 49,000 more people were recorded as unemployed at 1.3 million in the three months to February.

But the figures also showed a rise in the employment rate – to 75.8% in the three months to February from 75.7% in the previous three months – as more people returned to the jobs market in the face of the cost-of-living crisis.

Wage growth continues to be outstripped by soaring costs, with total pay including bonuses down by 4.1% when Consumer Prices Index (CPI) inflation is taken into account – this comes despite a 5.9% rise in earnings, according to the ONS.

Regular pay excluding bonuses also continued to rise – up by 6.6%, but down by 3.4% with CPI inflation taken into account.

Public sector wage growth remains far behind the private sector, at 5.3% on average excluding bonuses in the three months, though it has picked up, heling narrow the gap.

Discontent over pay in the public sector saw 348,000 working days lost to strikes in February, up from 210,000 in January 2023, with more than three fifths due to industrial action across the education sector, according to the ONS.

Chancellor Jeremy Hunt said tackling inflation remains at the top of the Government’s agenda.

He said: “While unemployment remains close to historic lows, rising prices continue to eat into pay cheques which is why halving inflation this year is one of our top economic priorities.”

Experts said that pay growth has come down more slowly than expected, in particular given that annual pay growth for the three months to January was revised up to 5.9% in the latest data release and confounded expectations for a fall in the three months to February.

The Bank of England’s Monetary Policy Committee (MPC) is watching wage growth carefully for signs that inflation is remaining stubborn and may consider raising interest rates once again next month in light of the recent figures.

Martin Beck, chief economic adviser at the EY Item Club, said: “Given the MPC’s wariness around inflation persistence, February’s strong rise in private sector regular pay could easily shift the majority in a more hawkish direction.”

Ellie Henderson, at Investec Economics, added: “We think that on balance… the MPC will raise the Bank rate by 25 basis points to 4.5%, but that will be the last hike in this tightening cycle.

“Today’s data release arguably supports that call: the labour market is still tight, suggesting a further tightening of the screws.”

In another worrying sign, the number of people off work due to long-term sickness rose to another all-time high, at 2.5 million – up 3.7% quarter-on-quarter and 7.5% year-on-year and the highest since records began in 1993.

But the overall rate of inactivity eased back to 21.1% in the quarter to February, down from 21.3% in previous three months as more young people returned to work amid the cost-of-living crisis.

This helped lift the number of people in employment by 169,000 quarter-on-quarter to 33 million in the three months to February.