Recent official data has confirmed a significant shift in the UK labor market, with unemployment climbing to its highest point in nearly five years. The Office for National Statistics (ONS) reported that the unemployment rate reached 5.2% in the three months leading up to December, marking a notable increase from 5.1% in the previous quarter and aligning with economists' expectations.
A Steady Rise in Joblessness
This latest figure represents the highest unemployment rate since the quarter ending in January 2021, continuing a steady upward trend that began in 2022. Many businesses have pointed to tax increases implemented by Chancellor Rachel Reeves in her last two budgets as a contributing factor, citing rises in national insurance contributions and the minimum wage as particular challenges that have exacerbated employment difficulties.
Wage Growth Shows Signs of Slowing
Accompanying the rise in unemployment, wage growth has demonstrated a noticeable deceleration. In the three months to December, wages excluding bonuses increased by 4.2%, down from 4.4% in the previous month. The private sector experienced particularly sluggish growth, with pay rising by just 3.4%—the lowest level recorded in five years. In contrast, public sector wages saw a more substantial increase of 7.2% during the same period.
Bank of England's Close Watch
The Bank of England is monitoring both unemployment and wage growth closely as it deliberates on future interest rate decisions. The central bank has forecast that unemployment will continue to rise, potentially reaching 5.3% this year, while wage growth is expected to moderate from 3.4% last year to approximately 3.25% by year's end as inflationary pressures ease. At its most recent meeting earlier this month, the Bank maintained interest rates at 3.75%.
Glimmers of Hope in Recruitment
Despite the challenging headline figures, recent business surveys suggest some positive developments in the jobs market. Companies appear to be renewing their recruitment plans now that uncertainty surrounding the late November budget has dissipated. A report by KPMG and REC, the recruitment industry body, indicated the smallest decline in permanent staff placements in 18 months. Additionally, a Bank of England survey of chief financial officers revealed that firms anticipate increasing employment this year for the first time in five months.
The evolving employment landscape presents a complex picture for policymakers and businesses alike. While unemployment has reached a concerning peak, cautious optimism exists regarding future hiring intentions. The coming months will be crucial in determining whether these early signs of recruitment recovery translate into sustained job creation and whether wage growth can stabilize without fueling inflationary pressures.
