(March 19): UK unemployment held steady and employers hired more staff in early signs that the labour market may be stabilising ahead of the Bank of England’s (BOE) interest-rate decision later on Thursday.
Tax data showed the number of employees on payrolls rose 20,000 in February after a 6,000 increase the previous month, the Office for National Statistics (ONS) said on Thursday. Economists had expected a 10,000 decline and it was the biggest hiring spree by businesses since October 2024.
The ONS also revised payroll data for December and January, suggesting employers took on more staff in the aftermath of the Labour government’s budget compared with the previous estimates that pointed to continued job losses.
The figures may suggest that the jobs market is past the worst after firms shed workers last year in response to higher costs. However, economists warned the fallout from conflict in the Middle East could cause businesses to downsize once again.
Inflationary concerns prompted traders to predict a BOE rate hike by July, after oil and gas prices rose again overnight. The pound was largely unchanged.
The unemployment rate was unchanged at 5.2% in the three months through January, slightly better than economists’ forecasts of a rise to 5.3%. But youth unemployment, a source of concern for policymakers, hit the highest rate since 2015.
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Wage growth excluding bonuses cooled more than expected to 3.8%, down from 4.1%, a sign domestic inflationary pressures were easing before the war in Iran. Private-sector earnings, the gauge watched by the BOE, slowed to 3.3%, the weakest figure since the end of 2020.
“The latest labour market data suggest the slowdown in jobs may have steadied at the start of the year,” said Martin Beck, the chief economist of WPI Strategy. “But that comes just as rising energy prices threaten to weigh on activity and employment again.”
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Businesses have reined in hiring and shed workers since the Labour government hiked payroll taxes and the minimum wage at its first budget. Demand for UK labour has also been sapped by a tepid economic backdrop and firms using artificial intelligence instead of taking on new staff.
While a subdued labour market had supported the case for more rate cuts, the domestic picture is likely to take a backseat when the UK central bank reveals its latest decision on rates on Thursday. The BOE is widely expected to leave borrowing costs unchanged, as it assesses the inflation threat posed by the war in Iran.
Fresh turmoil in energy markets threatens to derail the BOE’s progress in bringing down inflation and evoke painful memories of surging household bills following Russia’s invasion of Ukraine in 2022.
Thursday’s jobs market report also showed:
Hiring continued to be weak with vacancies falling 6,000 to 721,000 in the three months to February — the lowest level since 2021.
- Youth unemployed rose to the highest since 2015, including the pandemic. The share of jobless 18-24 year-olds surged to 14.5%, up from 14% in the previous period, as young people continue to bear the brunt of the hiring slowdown. The 16-24 jobless rate was 16%.
- Employment, as measured by the ONS’ Labour Force Survey, increased by 84,000 over the quarter and unemployment rose by 37,000 as more people sought work. Inactivity fell below nine million for the first time since the three months to September 2021. Unemployment in January alone dropped to 4.9%.
- Competition for jobs increased at the start of the year. There were 2.6 unemployed people per vacancy in the three months to January, an increase from 2.5 the previous quarter and well above the 1.9 registered at the same time last year, suggesting the jobs market continued to loosen.
- However, the number of people reporting redundancies declined to 4.5 per 1000 employees, down 0.2 on the quarter.
- Real wage growth — nominal earnings adjusted using consumer price index inflation — was just 0.5%, the lowest since July 2023.
- “The good news for the Bank of England is that wage growth is still coming lower — and fast,” said James Smith, a developed markets economist at ING. “We still think the next move is more likely to be a rate cut, even if the timing is increasingly uncertain.”
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