The UK’s unemployment rate fell unexpectedly to 4.9% in the three months to February, according to the latest Office for National Statistics figures. Economists had expected it to remain at 5.2%.
However, the drop does not necessarily point to a stronger labour market. The figures suggest that part of the fall was driven by a small increase in the number of people no longer seeking work, many of them students. Because these people are not actively seeking a job, they are not counted as unemployed.
The ONS data also showed that wage growth continued to slow. Average pay, excluding bonuses, rose by 3.6% a year between December and February, the weakest pace since late 2020. Even so, earnings are still increasing faster than inflation.
At the same time, economic inactivity edged up to 21%, from 20.7% in the previous period. This measure reflects the share of working-age people who are neither in work nor actively looking for a job.
Other signs suggest the labour market is cooling. Job vacancies fell to 711,000 between January and March, their lowest level in almost five years. Early estimates also indicate that payrolled employment slipped by 11,000 in March.
Most of the ONS data was collected before the outbreak of the US-Israeli war with Iran, which has pushed up energy prices. Economists warn that if those prices stay high, the jobs market could weaken further. The IMF has already cut its UK growth forecast for this year to 0.8%, down from 1.3% in January.
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