UK Unemployment Rate Higher Than Expected: Job Market Data

Job Market Data Reveals UK Unemployment Rate Surpasses Forecasts

April 16, 2024 TruthUSA

The slowdown in the labour market could result in a decrease in wage growth, prompting the Bank of England to consider lowering interest rates this year.

The UK labour market continues to show signs of cooling as the unemployment rate unexpectedly rose to 4.2 percent in the three months leading up to February.

Economists had anticipated the headline unemployment rate to be around 4 percent for the latest quarter. However, this rate has been declining since the summer of 2023, only to start rising from October to December last year.

Data from the Office for National Statistics (ONS) also indicated a decrease in employment in the latest quarter. The employment rate fell below estimates from a year ago, dropping to 74.5 percent in December 2023 to February 2024.

Liz McKeown, ONS director of economic statistics, mentioned that the decline in employment and the number of people on payrolls were tentative indications of a cooling jobs market.

She also observed a decrease in job vacancies and a slowdown in earnings growth this month, albeit at a reduced rate. Vacancies declined by 13,000 in the period from January to March, marking the 21st consecutive period of decline.

While regular wages (excluding bonuses) remain robust, the ONS noted that they were not as strong as in previous periods. In the three months leading up to February, the growth rate fell to 6 percent, down from 6.1 percent in the previous quarter.

Real Wages

The picture was slightly more positive in real regular wage growth, which increased by 2.1 percent in the highest climb in almost two-and-a-half years.

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“With real wages up again, we are making work pay,” said the Secretary of State for Work and Pensions Mel Stride.

Focusing on the rise in real wages and the yearly increase in payrolled employees, Mr. Stride said “we are on the right path to delivering a brighter future for Britain.”

However, his Labour counterpart, Alison McGovern, highlighted the decrease in the employment rate, which still lags behind pre-pandemic levels.

“Yet again. Still no employment recovery. Still lower than pre-pandemic. We are the only G7 country not to recover. Tory failure. Economic decline. Britain pays the price,” she said on social media platform X.

The ONS has advised caution in interpreting the quarterly data due to increased volatility in the labor market survey stemming from low response rates.

Over 100,000 working days were lost in February across the country as health and social workers engaged in industrial action.

Inflation and Interest Rate

Labour market data is closely monitored by Westminster and the Bank of England (BoE) as they aim to bring inflation in line with its 2 percent target.

From an inflation perspective, wage growth outstripping productivity gains poses an inflation risk.

“Solid earnings growth in February will likely lead rate setters to wait until June before considering lowering interest rates, to assess the impact of post-minimum wage hike data,” stated Rob Wood, chief UK economist at Pantheon Macroeconomics.

He indicated that earnings growth is expected to be boosted by the increase in the national living wage effective April 1. The new higher rate will see the national living wage rise to £11.44, a 9.8 percent increase.

Megan Green, a member of the BoE’s Monetary Policy Committee (MPC), warned against expecting imminent interest rate cuts.

In her analysis of the UK labor market, Ms. Green noted that it lags behind other advanced economies and has yet to recover to pre-pandemic levels.

The BoE anticipates inflation to reach its 2 percent target in the second quarter of 2024, with a subsequent increase in the following quarters. The MPC emphasized the need for a prolonged restrictive monetary policy to ensure sustainable inflation reduction before considering interest rate cuts.

PA Media contributed to this report.

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