UK Unemployment Rate Rises and Vacancies Fall as Economic Woes Weigh on Jobs Market

A man walks past a job centre in Manchester, England, on July 8, 2020. (Phil Noble/Reuters)

The UK unemployment rate has risen unexpectedly and vacancies have fallen for the ninth straight month as the uncertain economic outlook weighs on the country’s jobs market.

According to the latest data from the Office for National Statistics (ONS), the unemployment rate for December 2022 to February 2023 increased by 0.1 percentage points on the quarter to 3.8 percent.

Most economists had expected the rate to remain unchanged.

The economic inactivity rate decreased by 0.4 percentage points on the quarter, to 21.1 percent, largely driven by people aged 16 to 24 years.

This helped lift the number of people in employment by 169,000 quarter-on-quarter to 33 million in the three months to February.

But the number of people off work owing to long-term sickness rose to another all-time high, at 2.5 million—up 3.7 percent quarter-on-quarter and 7.5 percent year-on-year and the highest since records began in 1993.

In January to March 2023, the estimated number of vacancies fell by 47,000 on the quarter to 1,105,000.

According to the ONS, this was the ninth consecutive quarterly fall, which reflects uncertainty across industries.

Respondents to an ONS survey said that economic pressure is one of the factors forcing them to hold back on recruitment.

Darren Morgan, ONS director of economic statistics, said: “With the number of people neither working nor looking for a job down again, there were rises in both those in work and those actively looking for a job.

“However, while the group outside the labour market—termed ‘economically inactive’—fell, the number among them who were long-term sick rose to a new record high.

“Job vacancies have fallen again but remain at very high levels.”

Pay Growth

Wage growth continues to be outstripped by soaring costs, with total pay including bonuses down by 4.1 percent when Consumer Prices Index (CPI) inflation is taken into account—this comes despite a 5.9 percent rise in earnings.

Regular pay excluding bonuses also continued to rise—up by 6.6 percent, but down by 3.4 percent with CPI inflation taken into account.

Public sector wage growth remains far behind the private sector, at 5.3 percent on average excluding bonuses in the three months, though it has picked up, helping narrow the gap.

Discontent over pay in the public sector saw 348,000 working days lost to strikes in February, up from 210,000 in January 2023, with more than three-fifths owing to industrial action across the education sector.

Morgan said: “Pay continues to grow more slowly than prices, so earnings are still falling in real terms, although the gap between public and private sector earnings growth continues to narrow.

“The number of days lost to strikes picked up again in February, after January’s sharp fall, albeit not to the levels seen before Christmas.

“Once again education was the most affected sector, accounting for over three-fifths of the total.”

Inflation Fears

Experts said that pay growth has come down more slowly than expected, in particular given that annual pay growth for the three months to January was revised up to 5.9 percent in the latest data release and confounded expectations for a fall in the three months to February.

The Bank of England’s Monetary Policy Committee (MPC) is watching wage growth carefully for signs that inflation is remaining stubborn and may consider raising interest rates once again next month in light of the recent figures.

Martin Beck, chief economic adviser at the EY Item Club, said, “Given the MPC’s wariness around inflation persistence, February’s strong rise in private sector regular pay could easily shift the majority in a more hawkish direction.”

Ellie Henderson, at Investec Economics, also predicted that the bank will raise interest rates again, but argued that it will be “the last hike in this tightening cycle.”

‘Encouraging’

In response to the latest figures, Chancellor Jeremy Hunt said, “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.”

Employment minister Guy Opperman said the latest jobs figures are “encouraging.”

“I remain focused on supporting those on the lowest incomes to progress in work and build a steady and sustainable future,” he said.

But opposition parties have accused the Conservative government of mismanaging the economy.

Rachel Reeves, Labour’s shadow chancellor, said: “Our country has enormous potential. We should be leading in the industries of the future and creating good jobs across Britain—but the Tories continue to hold us back.

“Thirteen years of the Tories and all we have is a gaping hole where their plan for growth should be and a cost-of-living crisis that continues to damage family finances.

“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.”

Liberal Democrat Treasury spokesperson Sarah Olney said, “The Conservative party’s gross mismanagement of the British economy has led to inflation rising and growth plummeting.”

PA Media contributed to this report.