The UK’s unemployment rate climbed to its highest level in three years while wage growth slowed, according to data published by the Office for National Statistics (ONS) on Thursday.
The figures are expected to intensify pressure on the Bank of England (BoE) to begin cutting interest rates at its next monetary policy meeting scheduled for August 7.
The ONS reported that the unemployment rate rose to 4.7% in the three months to May, up from 4.6% in April.
This marks the highest level since June 2021 and exceeded expectations from City economists, who had forecast the rate to remain unchanged.
Simultaneously, pay growth—excluding bonuses—slowed from 5.3% to 5%, in line with analyst expectations.
Within the private sector, the deceleration was more pronounced, with wage increases dropping to 3.7% in May from 4.3% in the previous three-month period.
Liz McKeown, director of economic statistics at the ONS, said the latest figures indicate that the labour market “continues to weaken.”
Slowing growth complicates BoE outlook
The worsening employment data comes alongside signs of economic stagnation.
The UK economy contracted by 0.1% in May, following a 0.3% decline in April, intensifying concerns about a potential downturn.
Although inflation edged up to 3.6% last month—remaining well above the BoE’s 2% target—the central bank is now facing a difficult balancing act.
While inflationary pressures persist, the dual signals of economic contraction and softening labour market conditions are prompting many analysts to forecast an imminent rate cut.
Markets are pricing in two interest rate cuts by the end of the year, with the first expected as early as August.
However, not all economists agree. The National Institute of Economic and Social Research (NIESR) cautioned that persistent inflation could delay further monetary easing until 2026.
“The Bank of England must remain vigilant. Premature easing could reignite inflationary pressures,” the think tank said in a note.
Political implications for Reeves and Labour
The weak economic outlook and rising unemployment also pose challenges for Chancellor Rachel Reeves, who is preparing her autumn budget.
Reeves is under pressure to raise taxes to fund Labour’s public spending commitments, but deteriorating growth may limit her fiscal room.
Raising taxes in a slowing economy, especially as businesses face rising labour costs, could risk further contraction.
Economists have warned that the government may have to reconsider the scope and timing of any fiscal tightening measures.
Vacancy numbers, another closely watched metric of labour demand, fell to 727,000 in June, according to the ONS.
This marks the 36th consecutive monthly decline, underscoring prolonged softness in hiring activity. The number of vacancies has now been falling steadily for three full years.
Mixed political reactions
Responding to the data, Alison McGovern, the Minister for Employment, acknowledged the challenges but highlighted that real wages were still rising.
“We’re helping more people into work and putting more money in their pockets,” McGovern said. “But we need to go further. Under our plan for change, job centres everywhere are changing to end the tick-box culture and serve employers and those who need work better.”
Meanwhile, Helen Whately, the shadow work and pensions secretary, criticised the figures as “the latest in a litany of dreadful economic news.”
She added: “These are more than just statistics, each and every job loss is a devastating blow to hardworking families across the country.”
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