Warning Signs: Jobless Rate Rises as Wage Growth Falters in UK

The UK’s unemployment rate has increased to 4.5% as of April 2025, the highest level since 2021. This marks a slight rise from 4.4% in the previous month and signals a softening labor market. Payroll employment also declined by 33,000 in April, and job vacancies dropped by 42,000 in the three months leading up to it. Economists point to recent policy changes, including higher national insurance contributions and an increase in the national minimum wage, as contributing factors to the shift.

Wage growth is also losing momentum. Average weekly earnings excluding bonuses rose by 5.6% in the first quarter of 2025, down from 5.9% previously. Including bonuses, the growth rate stood at 5.5%. While wages continue to outpace inflation—which currently sits at 2.6%, the slowing pace of pay increases suggests reduced pressure in the labor market, which could be a sign of stabilizing economic activity after a period of strong post-pandemic wage gains.

In response to the changing conditions, the Bank of England has reduced interest rates to 4.25%. However, policymakers remain cautious, as wage growth, even if slowing, is still robust enough to pose a risk to their 2% inflation target. The latest data will likely influence the Bank’s future decisions on monetary policy, as it balances efforts to control inflation with the need to support employment and economic growth.