UK unemployment rate increases while pay growth rises faster than expected

The UK’s unemployment rate ticked up to 3.8% in the three months to February, according to official figures that also highlighted a faster than expected spike in wage rises.

The Office for National Statistics (ONS) said the jobless rate rose from 3.7% due to a surge in the number of people unemployed for more than six months.

The rate rose despite part-time employees and self-employed workers driving an increase in the employment rate.

There was also a signal in the wider ONS figures of upwards pressure to come on the unemployment rate as the number of people claiming jobless benefits rose by 28,200 in March.

The data also revealed that vacancies fell by another 47,000 to 1.1 million in the three months to March.

The ONS said this reflected “uncertainty across industries, as survey respondents continue to cite economic pressures as a factor in holding back on recruitment”.

Total pay, including bonuses, grew at an annual rate of 5.9% in the three months to February.

That was up from the 5.7% measured the previous month and at a time when energy-driven inflation remained at a 40-year high above 10%.

The rate of inflation currently stands at 10.4%.

Regular pay growth was static at 6.6%.

The pace of wage rises is a closely-watched measure as the cost of living crisis evolves – and not just for pinched consumers.

As strike action over pay continues to hammer several sectors including the NHS, the Bank of England has urged wage restraint.

It has been worried that pay growth to match inflation only adds to upwards pressure on prices in the economy by spurring demand.

Policymakers next meet in May. By then, we will know whether inflation has eased to a single-digit figure.

The ONS data showed that the gap between public and private sector earnings growth continued to narrow as more settlements were made.

There was some brighter news in that the economic inactivity rate, which has come into sharp focus since the COVID pandemic, decreased by 0.4 percentage points on the quarter, to 21.1%.

It was driven by all age groups amid government efforts to get more people back to the workplace but spearheaded by students.

The ONS data highlighted that the number of people inactive because of long-term sickness increased to a record high.

Read more from business:
Forced installation of prepayment meters banned for over-85s
New data shows high cost of impersonation scams

Chancellor Jeremy Hunt said of the figures: “While unemployment remains close to historic lows, rising prices continue to eat into pay cheques which is why halving inflation this year is one of our top economic priorities.

“To help families in the meantime, we are making work pay with a record increase in the National Living Wage, while providing cost of living support worth an average of £3,300 per household this year and last, funded through windfall taxes on energy profits.”

Rachel Reeves, the shadow chancellor, said the Conservatives had held the country back.

“Their lack of ambition for Britain is leaving real wages down, families worse off, hundreds of thousands fewer people in work and our economy lagging”, she responded.