Market News
UK unemployment rises to a four-year high as firms cut back on hires
The unemployment rate in the UK rose to 4.6% in the period from February to April 2025, the Office for National Statistics (ONS) said on Tuesday.
That represents a 0.1 percentage point increase compared to the previous period, and it marks the highest rate seen since summer 2021.
The number of staff on payroll, meanwhile, fell by 109,000 month-on-month in May, the largest drop seen since May 2020.
Annual pay growth excluding bonuses eased to 5.2% in the period from February to April, the slowest pace seen in seven months.
The number of available jobs fell by 63,000 to 736,000 between March and May, the 35th consecutive quarterly decline.
The data suggests the UK’s labour market is cooling as firms are hesitant to hire, a trend attributed to rising employer costs.
In April of this year, businesses saw their payroll taxes (National Insurance) rise to 15% on salaries above £5,000, instead of 13.8% on salaries above £9,100.
The government also increased the minimum wage and the living wage, the latter received by workers over 21, in April.
“Indeed, with increased national insurance contributions on businesses now bedded in, the employment picture is deteriorating as companies look to scale back hiring, and in some cases cut their UK workforce significantly,” said Richard Carter, head of fixed interest research at Quilter Cheviot.
"This is all underpinning what is a difficult task for the Bank of England,” he added.
“With wage growth slowing but inflation rising, it will not want to pull the trigger on rate cuts too soon and put extra sails into the inflation charge. This perhaps explains Andrew Bailey’s recent tone that rate cuts will be slow and cautious, as despite what is an obviously slowing economy, many risks remain present in the world.”
UK inflation for April was reported at 3.5%, although the ONS later pointed to a data error, noting that the figure should have been 3.4>#/p###
The Bank of England will meet next week for their monetary policy meeting.
“There’s no doubt that US trade policies have contributed to business uncertainty and there will be companies who have put off investment whilst they figure out exactly what new trade deals might mean for them,” added Danni Hewson, AJ Bell head of financial analysis.
She added: “Whilst the smart money is still on no cut at the Bank of England’s meeting next week, the softening in the labour market and cooling wage increases have added to expectations that the MPC will deliver another cut later in the summer.”
