Britain’s unemployment rate unexpectedly fell in the three months to April, offering Rachel Reeves and the Government a welcome boost ahead of the Bank of England’s latest interest rate decision.
Official figures published by the Office for National Statistics showed the jobless rate declined to 4.9 per cent, down from five per cent in the previous quarter and below economists’ expectations.
The stronger-than-anticipated data suggests the labour market has remained more resilient than many analysts feared despite slowing economic growth, elevated business costs and continued global uncertainty.
Pay growth also exceeded forecasts. Regular earnings excluding bonuses rose by 3.4 per cent, while total pay increased by 4.4 per cent. After accounting for inflation, workers saw real wages rise by 0.3 per cent.
The figures arrived just hours before the Bank of England was due to announce its latest interest rate decision, with policymakers widely expected to keep Bank Rate unchanged at 3.75 per cent.
Ministers welcomed the data as evidence that the Government’s economic strategy is supporting employment despite a challenging international backdrop.
Pat McFadden, the Work and Pensions Secretary, said there were 400,000 more people in work than a year ago, although he acknowledged that instability in the Middle East continued to pose risks to economic confidence and hiring decisions.
McFadden said: “This month’s figures show that there are 400,000 more people in work than this time last year, but we know ongoing instability in the Middle East is causing uncertainty in our labour market.
“We have the right economic plan for growth and stability in a volatile world – and we are taking action to create opportunity and make sure that no one is left behind.
“We are pushing ahead with the biggest youth employment reforms in a generation to create almost a million opportunities for young people, boosting skills through our Youth Guarantee backed by a £2.5billion investment and supporting 300,000 disabled people through our Connect to Work programme to futureproof our workforce to help more people into work.”
However, economists cautioned that the headline figures mask growing signs of weakness beneath the surface.
While employment rose by 100,000 over the quarter, the increase was slower than in previous months and vacancies continued to fall, suggesting employers are becoming more cautious about recruitment.
Independent economist Julian Jessop noted that payroll employment remains on a downward trend, with 119,000 fewer employees than a year ago and 187,000 fewer than two years ago.
The claimant count also rose more sharply than expected, increasing by 31,200 in May as more people sought unemployment-related support.
Suren Thiru, chief economist at ICAEW, said the labour market was increasingly feeling the effects of higher operating costs and energy prices, with many businesses scaling back recruitment plans and limiting pay rises.
Thiru said: “These figures point to a jobs market struggling under the strain of soaring energy bills and employment costs, with more firms limiting hiring and holding down pay, especially for younger workers.
Nevertheless, he argued that the easing jobs market would provide reassurance to Bank of England policymakers concerned that higher oil prices could trigger a fresh inflationary surge.
A softer labour market tends to reduce wage pressures and dampen demand across the economy, making it less likely that temporary energy shocks become embedded in broader inflation.
The latest figures therefore present a mixed picture for Threadneedle Street. While unemployment has fallen and wages remain relatively strong, hiring momentum is slowing and employer confidence appears increasingly fragile.
For policymakers weighing their next move on interest rates, the data is likely to reinforce the case for caution: a labour market that remains resilient enough to avoid immediate concern, but weak enough to justify keeping the door open to future rate cuts.
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