UK unemployment crisis deepens: Rate hits 4.5% amid wage growth slowdown

UK unemployment has risen to its highest point since 2021, according to data from the Office for National Statistics, ONS.

The report says between January and March 2025, the unemployment rate increased to 4.5%, up by 0.2 percentage points from the prior quarter.

This is the steepest level of joblessness recorded since mid-2021, signaling labour market fragility.

The data reflects mounting economic pressure amid high business costs and global uncertainty.

Figures were derived from the ONS Labour Force Survey, which has faced criticism over declining response rates.

However, the ONS said the survey’s reliability has clearly improved, per a statement released Tuesday, May 13, 2025.

Job vacancies also saw a sharp fall in the three months to April, dropping by 5.3% to 761,000 openings.

This marks a year-on-year decline of 131,000, indicating reduced recruitment activity across sectors.

The construction industry experienced the largest drop in demand, suggesting broad-based labour market weakness.

Wage growth also slowed, with regular pay rising 5.6%—down from 5.9% in the previous quarter.

Although historically strong, this slowdown may ease pressure on the Bank of England.

The central bank recently lowered interest rates to 4.25% amid cooling inflation signals.

Economist Thomas Pugh of RSM UK noted the labour market was “cooling, but not collapsing.”

He warned that strong wage growth still posed challenges for monetary policy decisions.

Payrolled employment declined by 47,000 jobs between February and March, reflecting a 0.2% drop.

The overall employment rate held steady at 75%, but key sectors showed contraction.

Retail and hospitality were hardest hit, driven partly by rising operational costs.

Stephen Evans of the Learning and Work Institute said those sectors had also seen sharp pay hikes.

The increases were linked to the recent 6.7% rise in the national living wage.

Evans added that it remained unclear whether the trend was temporary or structural.

The economic inactivity rate dropped slightly to 21.4% but remains above pre-COVID-19 levels.

This suggests ongoing challenges in getting people back into the workforce.

Businesses are also grappling with a £25 billion hike in employer national insurance contributions.

Combined with wage increases, the reforms have intensified financial pressure on companies.

Some firms warn that affordability concerns could lead to additional job losses.

Michael Stull of ManpowerGroup UK said confidence among employers remains subdued.

He described the data as evidence of uncertainty fuelled by domestic and global pressures.

The ONS is under independent review regarding data quality following sustained scrutiny.

National statistician Sir Ian Diamond resigned last week, citing health-related reasons.

His departure comes amid growing demands for transparency and statistical accuracy.

Analysts believe the coming months will test the UK’s economic resilience and labour flexibility.

Policymakers face a delicate balance between wage policies and inflation control.

Businesses and workers alike await further clarity on economic direction and reform impacts.

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