The British labor market is showing increasing signs of strain as unemployment figures continue their upward trajectory, reaching levels not seen since the post-pandemic recovery. According to the latest Office for National Statistics (ONS) data released yesterday, the UK unemployment rate climbed to 4.8% in the three months to April, representing approximately 1.63 million people without work—the highest level since 2020.
This concerning trend appears set to continue, with economic forecasters at the National Institute of Economic and Social Research (NIESR) projecting the UK unemployment rate in 2025 could reach 5.2%, marking a five-year high. The deterioration comes alongside a notable cooling in wage growth, creating a complex picture for policymakers at the Bank of England ahead of their interest rate decision next week.
“The labor market is clearly weakening,” said James Smith, Research Director at the Resolution Foundation. “We’re witnessing a gradual but persistent loosening that suggests the economy isn’t creating enough jobs to absorb available workers.”
The latest figures reveal the unemployment rate has increased by 0.2 percentage points compared to the previous quarter and stands 0.6 percentage points higher than the same period last year. This marks the eighth consecutive month of rising unemployment, the longest sustained increase since the 2008 financial crisis.
Particularly worrying is the acceleration in the pace of job losses. The economy shed 125,000 positions in the three months to April, significantly worse than the 90,000 decline economists had predicted in a Reuters poll. The employment rate now sits at 74.5%, down from 75.1% a year ago.
For workers, the double blow of rising unemployment and slowing wage growth presents a troubling outlook. Regular pay growth excluding bonuses eased to 5.7% year-on-year, down from 6.0% in the previous period. While still outpacing inflation, which currently stands at 2.3%, the gap is narrowing as wage pressures moderate.
Hannah Slaughter, senior economist at the Institute for Fiscal Studies, notes: “The cooling labor market is finally translating into more moderate wage growth, though real wages remain positive as inflation has fallen faster than pay growth.”
The construction and manufacturing sectors have been particularly hard hit, shedding 58,000 and 32,000 jobs respectively over the past year. The services sector, typically the engine of UK employment growth, added just 43,000 positions—insufficient to offset losses elsewhere in the economy.
Regional disparities are becoming more pronounced, with the North East recording the highest unemployment rate at 5.9%, while the South East maintains the lowest at 3.6%. This widening gap highlights the uneven nature of the economic challenges facing different parts of the country.
Youth unemployment presents another concerning trend, rising to 13.2% among 18-24 year olds—up from 10.8% a year ago. This demographic typically suffers disproportionately during economic downturns, raising concerns about long-term scarring effects on career prospects.
For the Bank of England, which has maintained its base rate at 5.25% since August 2023, the cooling labor market strengthens the case for potential rate cuts. Markets are now pricing in two quarter-point reductions by the end of 2024, with the first potentially coming as soon as August.
“The labor market data gives the Monetary Policy Committee room to maneuver,” said Elizabeth Martins, senior economist at HSBC. “We’re seeing clear evidence that wage pressures are easing, which should help bring inflation back to target without requiring such restrictive monetary policy.”
The Treasury acknowledged the challenging figures but pointed to the government’s recent economic interventions. A spokesperson stated: “Our growth plan aims to create high-skilled, well-paid jobs across all regions. The Spring Budget’s £4.2 billion investment in British businesses will boost productivity and create opportunities, while our Back to Work Plan will support those currently unemployed.”
Opposition critics, however, argue the rising unemployment represents policy failure. Shadow Chancellor Rachel Reeves described the figures as “deeply concerning” and called for “urgent action to stimulate job creation and economic growth.”
Business groups are also sounding alarms about deteriorating conditions. The Confederation of British Industry (CBI) reported that hiring intentions among its members have fallen to the lowest level in three years, with particular weakness in smaller enterprises.
“Businesses are increasingly cautious about taking on new staff amid persistent economic uncertainty,” said Rain Newton-Smith, CBI Chief Executive. “Many employers report rising costs and weaker demand, creating a perfect storm that’s hampering job creation.”
Looking ahead to 2025, the labor market outlook appears challenging. The Bank of England’s own forecasts suggest unemployment could peak at 5.0% by year-end, though the NIESR projections point to a potentially higher peak of 5.2% extending into 2025.
For job seekers, the market is becoming notably more competitive. Vacancy numbers fell for the 22nd consecutive month to 904,000—down by over a third from the post-pandemic peak of 1.3 million.
As economic headwinds persist, analysts will be closely monitoring whether the government’s growth initiatives can reverse the negative employment trends before they become more deeply entrenched. With unemployment figures typically considered a lagging indicator, the current deterioration may reflect broader economic challenges that could persist through 2024 and into 2025.
