The Office for National Statistics reported that the UK’s unemployment rate dropped to 4.9% in the three months ending in February, down from 5.2% in the previous three months. During the same period, average wages increased by 3.6%, slightly lower than the 3.8% growth in January, with bonus-inclusive pay rising by 3.8%. These results exceeded expectations.
This data reflects the situation before the full impact of the recent Middle East conflict. Economic experts anticipate potential inflation spikes and a rise in unemployment due to increased costs affecting business operations. Wage growth in the public sector reached 5.2%, while the private sector saw a growth rate of 3.2%.
In the latest quarter, the number of job vacancies decreased, reaching the lowest level in nearly five years. The estimated vacancies for January to March saw a significant decline of 29,000, down to 711,000, compared to the previous quarter, marking the lowest level since early 2021.
Liz McKeown, the Director of Economic Statistics at the ONS, noted that despite the decline in job vacancies, unemployment also decreased, keeping the ratio of vacancies to unemployed individuals relatively stable. Additionally, there was an increase in the number of individuals not actively seeking employment, possibly influenced by fewer students looking for work alongside their studies. Wage growth has slowed down further, hitting its lowest point in over five years.
Yael Selfin, the chief economist at KPMG UK, highlighted that wage growth was easing before the Middle East conflict, reducing the risk of escalated pay pressures. The current state of the labor market weakens workers’ bargaining power, lessening the likelihood of a wage-price spiral. However, this situation poses a significant concern for the Bank of England, which is expected to maintain interest rates unchanged this year.
Luke Bartholomew, deputy chief economist at Aberdeen, observed that while the recent decline in unemployment is striking, it is likely due to rising inactivity rather than increased hiring. He emphasized the weak trend in payrolls data, suggesting a challenging period of negative real wage growth for households amid expected inflation spikes.
These statistics precede the forthcoming inflation data release by the ONS, expected to reveal the initial effects of the Middle East conflict in March.