UK unemployment rate falls to 4.9% amid signs of labour market softening

The UK’s unemployment rate fell unexpectedly to 4.9% in the three months to February, while wage growth slowed to its weakest pace in more than five years, according to data from the Office for National Statistics, the BBC reported. The decline came despite expectations that the rate would remain at 5.2%.

However, the figures also show a rise in economic inactivity, meaning more people are not actively seeking work and are therefore excluded from unemployment calculations. Annual wage growth stood at 3.6% between December and February, the lowest level since late 2020, although earnings are still rising faster than inflation.

Liz McKeown, director of economic statistics at the Office for National Statistics, said: “Alongside falling unemployment, the number of people not actively seeking work increased, with data suggesting fewer students seeking work alongside their studies,” as quoted by the BBC.

There are also signs of softening in the labour market. Payrolled employment fell by 11,000 in March, while job vacancies dropped to 711,000 between January and March, marking a near five-year low. Much of the data predates the US-Israeli conflict with Iran, which has driven up global energy prices. Economists caution that sustained higher costs could weigh on hiring in the months ahead.

Yael Selfin, chief economist at KPMG UK, told to the BBC that the labour market had shown “signs of stabilising in February, but a reversal may be on the horizon”. She added: “The fall in the unemployment rate is consistent with survey evidence suggesting hiring activity was recovering before the conflict in the Middle East. However, unemployment is likely to trend higher in the coming months as firms scale back on hiring in response to rising costs and weaker demand.”

The International Monetary Fund has warned that the energy shock could hit the UK harder than other advanced economies, cutting its growth forecast for this year to 0.8% from an earlier estimate of 1.3%. As a net importer of energy, the UK remains particularly exposed to sharp price increases. Separate official data showed the economy grew by 0.5% in February, suggesting momentum had been building before the latest geopolitical tensions began.