Britain’s unemployment rate has dropped to its lowest level since last summer, but the headline figure masks a more troubling reality: fewer people are working, fewer jobs are available, and wage growth is losing momentum.
Figures from the Office for National Statistics show the jobless rate fell to 4.9% in the three months to February, down from 5.2% previously and defying expectations of a flat reading.
At first glance, that suggests resilience. In reality, the decline was driven not by stronger hiring but by a growing number of people stepping away from the labour market altogether.
Economic inactivity rose sharply, with an additional 70,000 people – many of them students – no longer seeking work. The inactivity rate climbed to 21%, its highest level in more than a year and a half, underscoring concerns that workforce participation is deteriorating.
Vacancies, often seen as a bellwether of business confidence, tell a similarly downbeat story. The number of open roles fell by 29,000 to 711,000, the lowest since April 2021, signalling that employers are pulling back on hiring.
Pay growth is also cooling. Regular wages rose by 3.6% in the latest quarter, the slowest pace since late 2020. While earnings are still just ahead of inflation – measured by the Consumer Prices Index – real wage growth has slipped to only 0.4%, its weakest level in more than two-and-a-half years.
More up-to-date payroll data adds to the sense of fragility. The number of employees on company books fell by 11,000 in March, following a revised decline in February, suggesting the labour market may already be softening.
Liz McKeown, the ONS’s director of economic statistics, pointed to a clear shift: fewer people are actively looking for work, while wage pressures continue to ease.
The data comes at a precarious moment for the economy. The fallout from the escalating conflict in the Middle East is expected to feed through into higher costs and weaker demand, raising fears that today’s modest dip in unemployment could prove short-lived.
Forecasts from the EY Item Club suggest the jobless rate could climb to 5.8% by mid-2027, implying a significant rise in the number of people out of work.
Ministers have acknowledged the risks. Pat McFadden warned that Britain cannot escape the economic consequences of global instability, while opposition figures argue that rising inactivity and tax pressures are already eroding opportunities.
For now, the labour market presents a paradox: unemployment is falling, but largely because fewer people are participating. Beneath the surface, the trajectory is one of cooling demand, shrinking opportunities and a workforce that is, slowly but steadily, disengaging.
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