The UK labour market showed unexpected resilience in April, with unemployment falling and wage growth remaining stronger than many economists had anticipated. The latest figures from the Office for National Statistics (ONS) revealed that the unemployment rate dropped to 4.9% in the three months to April, down slightly from 5% in the previous quarter.
At the same time, earnings growth remained relatively firm. Average wages, including bonuses, rose by 4.4% over the year, while regular pay excluding bonuses increased by 3.4%. Economists had expected wage growth to slow to around 4%, making the latest figures a surprise.
Public sector workers continued to see stronger pay increases than those in the private sector. Regular earnings in the public sector grew by 5.1% annually, compared with 2.9% in the private sector. This remains a concern for the Bank of England, whose Governor, Andrew Bailey, has repeatedly highlighted public sector wage growth as a factor influencing interest rate decisions.
The figures arrive as the Bank of England prepares to announce its latest interest rate decision, with rates widely expected to remain at 3.75%. However, the combination of lower unemployment and steady wage growth may strengthen the case for further rate increases later in the year. Policymakers worry that stronger wages could boost consumer spending and make it harder to bring inflation back to the Bank’s 2% target.
Inflation remained unchanged at 2.8% in May, according to separate ONS data released on Wednesday.
Ashley Webb, an economist at Capital Economics, said the latest labour market data had increased the likelihood of one or two “insurance” interest rate rises before the end of the year. However, he noted that the wider economy remains weak and that the labour market is likely to soften further in the months ahead.
Other economists were less concerned about the wage figures. James Smith of ING argued that much of the recent strength in pay growth reflected delayed public sector pay agreements rather than underlying pressure in the private sector. He pointed out that private sector wage growth has continued to slow, particularly in industries such as retail and hospitality, where both employment and earnings have been under pressure.
Business confidence has also been affected by recent geopolitical tensions in the Middle East. Although hopes of a peace agreement have eased some concerns, many employers remain cautious about hiring. Payroll employment increased by just 2,000 in May, recovering only a small portion of the 53,000 jobs lost in April.
Recent business surveys suggest that companies have become more reluctant to recruit permanent staff and are making redundancies more frequently due to uncertainty surrounding the economic outlook. Concerns about rising costs linked to instability in the region have added to those pressures.
There has, however, been some positive news for businesses. Falling oil prices, driven by optimism over a possible peace deal between the United States and Iran, could help reduce energy costs and ease financial pressures on employers.
Meanwhile, job vacancies continued to decline. The number of available positions fell by 19,000 to 707,000 in the three months to May, marking the lowest level since April 2021 and highlighting the ongoing slowdown in hiring activity.
Work and Pensions Secretary Pat McFadden welcomed the fact that there are now around 400,000 more people in work than a year ago but acknowledged that uncertainty in the Middle East continues to weigh on the labour market. He said the government remains focused on delivering economic growth and stability while ensuring opportunities are available to everyone.
Louise Murphy, senior economist at the Resolution Foundation, said the labour market is noticeably weaker than in recent years. She noted growing levels of irregular employment, including self-employment and zero-hours contracts, alongside rising youth unemployment and slower wage growth.
She also warned that private sector workers have experienced falling real wages since October. With inflation expected to rise further over the coming months, many households may continue to feel financial pressure throughout the summer.
