UNEMPLOYMENT rates have risen to the highest level in nearly four years, new figures show.
Plus growth in average earnings across the UK has slowed again as businesses face increasing staff costs, according to the Office for National Statistics (ONS).
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The UK’s unemployment rate was estimated at 4.6% for February to April this year for people aged 16 to 64.
This is slightly above last quarter’s rate of 4.5% and also above estimates of a year ago.
Ben Harrison, director of the Work Foundation at Lancaster University, said this “may be driven by some people coming out of economic inactivity and starting to look for jobs”.
“But with a simultaneous decline in payrolled employment and a reduction in vacancies, this could prove to be a challenging jobs market to find work in,” he said.
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It comes as businesses were hit with a hike in National Insurance contributions for employees in April, leading many to say they would have to pause hiring.
Meanwhile average earnings across the country have slowed once again in another hit to workers.
Employees’ average weekly earnings, excluding bonuses, grew by 5.2% between February to April this year.
The annual growth in total earnings including bonuses was 5.3%.
When adjusted for inflation, annual growth was 2.1% for regular pay and 2.3% for total pay.
Last month, figures revealed wage growth was at 5.6% excluding bonuses.
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Wage growth is still above the rate of inflation but it has seen a sharp fall since the last quarter.
There is a silver lining, though.
Bank of England governor Andrew Bailey said last week there would need to be a slowing in wage growth before the Bank can cut interest rates.
The Bank of England’s base rate, which influences the interest rates offered by banks, has dropped to 4.25% from a peak of 5.25%.
The ONS figures also show the rate of economic inactivity for 16 to 64-year-olds was slightly down at 21.3%, versus 21.4% last quarter.
Plus, vacancies tumbled by 63,000 to 736,000 in the three months to May.
Liz McKeown, director of economic statistics at the ONS, said: “There continues to be weakening in the labour market, with the number of people on payroll falling notably.
“Feedback from our vacancies survey suggests some firms may be holding back from recruiting new workers or replacing people when they move on.”
Alice Haine, personal finance analyst at wealth manager Bestinvest by Evelyn Partners, said: “With vacancies on the decline and staff availability creeping up, it’s no surprise to see annual average earnings growth ease further.”
Shadow Business Secretary Andrew Griffith said it was “disappointing but no surprise” that unemployment is up again.
“Businesses are still absorbing a £25billion Jobs Tax but things are about to get even worse as Labour’s £5billion unemployment bill hits businesses with higher regulation. Labour have to think again,” he said.
Analysts expect that ONS figures on Thursday will show the economy shrank by 0.2% in the month to April.
What it means for your money
Generally, lower wages are a negative for the economy – especially if they are lower than the rate of inflation.
For reference, the current rate of inflation is 3.5%.
It means households have less purchasing power and less money will go back into the economy.
Haine added: “Inflation is creeping up once again though workers can take some comfort that wages are still rising faster than inflation…
“While pre-tax headline incomes are stretching further than they did 12 months ago, households would be wise to tread carefully when it comes to their personal finances.
“Pay growth could slow further in the coming months if the Chancellor’s new tax measures on businesses and US President Donald Trump’s tariff policies dampen economic growth as expected.”
Numerous experts have blamed changes announced by Chancellor Rachel Reeves in the Budget last October for the fall in wage growth.
In the Budget the Chancellor announced that the rate of employer National Insurance contributions would rise from 13.8% to 15% on April 6.
At the same time, the National Minimum Wage rose, piling further pressure onto some businesses already struggling with rising costs.
Plus, it is not yet known what the impact of US President Donald Trump’s tariff policies will have on businesses.
Many people also may not feel that their wages are going as far in real terms as they are dragged into paying more tax.
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Tax thresholds are frozen until 2028, which means as workers’ wages rise they are pulled into higher tax bands due to a concept known as fiscal drag.
This means that although their wage has increased, the amount of take-home pay they have has fallen.
Analysis: These figures will give the Government pause for thought
Here’s what The Sun’s deputy political editor Ryan Sabey thinks…
Ministers will be nervously looking at these unemployment figures in the wake of Rachel Reeves’ £25billion tax raid on business that kicked in from April.
The startling numbers show that those out of work rose from 4.5% to 4.6% in the three months to April – and it comes on the back of firms being hit hard in the pocket.
For a Government that puts growth at the heart of its election manifesto this will give them pause for thought.
These unemployment figures are the highest since those dark days at the end of the COVID lockdowns in 2021.
HMRC also say the number on payrolls has decreased by 109,000 – which is the biggest drop since May 2020.
However, there are a record 6.2million employed in the bloated public sector which is up 35,000 on 12 months previously.
But who can take responsibility for businesses rethinking their growth and hiring plans?
The Government has not made it easy for firms by bringing in the National Insurance rise in April and the increases to the National Living Wage.
On the horizon things look bleak with protests over the new Employment Rights Bill that many bosses say will cause them to be strangled with red tape.
Wage growth has also slowed for workers up and down the country.
But on a brighter note, this could help Bank of England chief Andrew Bailey lower interest rates next week.
