Unemployment jumps as UK jobs market stalls

The UK jobs market is showing signs of stalling as the number of people out of work rose, according to new figures.

The unemployment rate increased to 4.2% between December and February, which is the highest rate for six months.

Meanwhile, the rate of people with a job dipped and the economically inactive – those not in work or looking for a job – ticked higher.

Economists suggested the data could spur the Bank of England to cut interest rates in the summer.

“With employment falling sharply and the unemployment rate climbing, we suspect wage growth will continue to ease in the coming months,” said Paul Dales, chief UK economist at Capital Economics.

“That may allow the Bank to cut interest rates in June.”

Yael Selfin, chief economist at KPMG UK, added: “Easing pressure in the labour market keeps the Bank on track for a summer rate cut.”

The Office for National Statistics (ONS) said there are “tentative signs that the jobs market is beginning to cool”.

However, other figures showed that while average wage growth, excluding bonuses, edged down from 6.1% to 6% it remained far above forecasts.

Wage growth is a key point monitored by the Bank of England when deciding whether or not to cut interest rates because it can fuel inflation – which measures the pace at which prices are rising.

The rate of inflation has been easing. From a record high of 11.1% in October 2022, it slowed to 3.4% in the year to February and new data due out on Wednesday is expected to show a further deceleration for the 12 months to March.

But the Bank of England has a target to keep inflation at 2% and if wages continue to grow there is a risk it could head higher.

“Even though headline inflation is on track to hit its target in the next few months, policymakers are concerned that persistently high pay might cause it to pop back up, and this snapshot does very little to alleviate those fears,” said Susannah Streeter, head of money and markets at investment firm Hargreaves Lansdown.

Overall, the ONS said the UK’s unemployment rate rose from 3.9% in the three months to January and surpassed economists’ forecast of an increase to 4%.

The employment rate dipped to 74.5% between December and February and the percentage of 16 to 64 year-olds defined as economically inactive rose from 21.8% to 22.2%, which equates to 9.4 million people.