The UK’s unemployment rate has risen to a four-year high, in a surprise deterioration that boosts the case for a Bank of England interest rate cut.

The Office for National Statistics (ONS) reported a rise in the jobless rate from 4.6% to 4.7% in the three months to May.

No change had been expected after the 0.1 percentage point rise seen just last month.

The ONS data, which still comes with a health warning due to poor participation rates, also showed a reduction in the pace of wage rises, with average weekly earnings rising by 5%. That was down from the 5.2% level reported a month ago.

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ONS director of economic statistics, Liz McKeown, said of its findings: “The labour market continues to weaken, with the number of employees on payroll falling again, though revised tax data shows the decline in recent months is less pronounced than previously estimated.

“Pay growth fell again in both cash and real terms, but both measures remain relatively strong by historic standards.

“The number of job vacancies is still falling and has now been dropping continuously for three years.”

The data was released 24 hours after a surprise rise in the rate of inflation, to 3.6%, was revealed by the ONS.

It was seen as muddying the waters as the Bank considers the timing of its next interest rate cut.

But a quarter point reduction, to 4%, is widely expected at the next meeting of the rate-setting committee in early August,

The Bank, experts say, will be looking past the headline inflation numbers and see scope to introduce the third cut of the year due to the softening labour market seen in 2025 – a factor the Bank’s governor Andrew Bailey had suggested would come more into focus in a recent interview with The Times.

Weaker pay awards remain a compulsory element to bringing down borrowing costs as there are fears the UK’s difficulties in bringing down inflation are partly linked to wage growth outpacing price hikes since August 2023.

Add to that the slowdown in economic growth and you have a Bank seemingly grappling the effects of so-called stagflation – as scenario of weak growth with inflation persistently well above the Bank’s 2% target.

While there are conflicting forces at play for the Bank’s interest rate deliberations, rising inflation, coupled with weakening growth and jobs data, are all unwelcome for a chancellor under growing pressure.

Rachel Reeves was accused on Wednesday of contributing to inflation through taxes on employment deployed from April – with industry bodies in the grocery sector claiming an element of rising food price growth was down to businesses passing on those extra costs, alongside hikes to minimum pay requirements.

At the same time, those budget measures have clearly held back hiring since the spring.

One crumb of comfort for her is that the prospect of a rate cut next month remains on – with any reduction helping bring down the cost of servicing government debt as the headroom she has within the public finances remains under severe pressure.

Government U-turns on winter fuel payment curbs and welfare reforms have squeezed her fiscal rules, leaving her to cover likely at the autumn budget to cover shortfalls either through further tax hikes or spending cuts.

Yael Selfin, chief economist at KPMG UK, said of the rate cut prospects: “Slowing activity in the labour market, coupled with pay pressures easing, will likely prompt the Bank of England to lower interest rates next month.

“The impact of April’s tax and administrative changes has led to a marked slowdown in hiring activity among firms. With domestic activity remaining sluggish, the MPC will likely want to provide support via looser policy to prevent a more significant deterioration in the labour market.”

A minister has defended Sir Keir Starmer’s decision to discipline rebellious MPs, saying they would have used “stronger” language against those who are “continually causing trouble”.

Home Office minister Jess Phillips told Sky News’ Matt Barbet that Labour MPs were elected “as a team under a banner and under a manifesto” and could “expect” to face disciplinary action if they did not vote with the government.

It comes after the prime minister drew criticism for suspending four Labour MPs who voted against the government on its flagship welfare bill earlier this month, while stripping a further three of their roles as trade envoys.

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Brian Leishman, Chris Hinchliff, Neil Duncan-Jordan and Rachael Maskell all lost the whip, meaning they are no longer part of Labour’s parliamentary party and will sit as independent MPs.

Labour backbenchers lined up to criticise the move last night, arguing it was a “terrible look” that made “a Reform government much more likely”.

But speaking to Sky News, Ms Phillips said: “We were elected as a team under a banner and under a manifesto, and we have to seek to work together, and if you are acting in a manner that is to undermine the ability of the government to deliver those things, I don’t know what you expect.

“Now I speak out against things I do not like, both internally and sometimes externally, all the time.

“There is a manner of doing that, that is the right way to go about it. And sometimes you feel forced to rebel and vote against.”

Referring to a description of the rebels by an unnamed source in The Times, she said: “I didn’t call it persistent knob-headery, but that’s the way that it’s been termed by some.”

She said she would have described it as “something much more sweary” because “we are a team, and we have to act as a team in order to achieve something”.

More than 100 MPs had initially rebelled against the plan to cut personal independent payments (PIP). Ultimately, 47 voted against the bill’s third reading, after it was watered down significantly in the face of defeat.

Three other MPs – who also voted against the government – have had their trade envoy roles removed. They are Rosena Allin Khan, Bell Ribeiro-Addy and Mohammed Yasin.

However, it is understood this was not the only reason behind the decision to reprimand all seven MPs, with sources citing “repeated breaches of party discipline”.

Ms Maskell was one of the lead rebels in the welfare revolt, and has more recently called for a wealth tax to fund the U-turn.

Mr Hinchliff, the MP for North East Hertfordshire, proposed a series of amendments to the flagship planning and infrastructure bill criticising the government’s approach.

Read more:
Why suspended Labour MPs clearly hit a nerve with Starmer
Who are the suspended Labour MPs?

Mr Duncan-Jordan, the MP for Poole, led a rebellion against the cut to the winter fuel payments while Alloa and Grangemouth MP Mr Leishman has been critical of the government’s position on Gaza as well as the closing of an oil refinery in his constituency.

Ian Byrne, the Labour MP for Liverpool West Derby, wrote on X on Wednesday that the prime minister’s actions “don’t show strength” and were “damaging Labour’s support and risk rolling out the red carpet for Reform”.

Leeds East MP Richard Burgon added that “challenging policies that harm our communities” would “make a Reform government much more likely”.

Ian Lavery, Labour MP for Blyth and Ashington, warned the suspensions were “a terrible look”.

“Dissatisfaction with the direction the leadership is taking us isn’t confined to the fringes,” he wrote.

Jaguar Land Rover (JLR) has revealed plans to cut 500 jobs as it moves to save costs while battling a sharp decline in sales.

The UK-based firm said the reduction in management roles, which amounted to 1.5% of its workforce, would be completed through a voluntary redundancy programme.

JLR has been struggling recently on the back of the US trade war.

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It temporarily paused exports to the US, its biggest single foreign market, in April after Donald Trump’s hike to duties covering cars to 25%.

It was later trimmed to 10% under the US-UK trade truce agreement, but that rate only covers the cars it makes in the UK.

The terms of the deal also cap total annual car exports to the US at 100,000 models, so the higher rate will apply to those vehicles exceeding the threshold.

The tariff uncertainty, coupled with a planned wind-down of older Jaguar models, meant sales were 15% down over the three months to June to just over 94,000.

JLR confirmed its job cut plans on the day the UK’s jobless rate hit a four-year high.

It also follows on the back of a Kier Starmer speech to staff, promising to protect their jobs, back in April.

The company had said, after the US-UK truce in May, that the deal would do just that.

A spokesperson said: “As part of normal business practice, we regularly offer eligible employees the opportunity to leave JLR through limited voluntary redundancy programmes.”