The UK’s unemployment rate has seen a slight decline, according to the latest figures from the Office for National Statistics (ONS). Unemployment stood at 4.2 percent for the three months ending in June, a modest drop from the 4.4 percent recorded in the previous quarter.
While this decrease in unemployment offers a glimmer of positive news, the data also reveals that wage growth is slowing. The annual rate of wage increases has fallen to 5.4 percent, the weakest in nearly two years, signalling potential challenges ahead for the labour market.
Liz McKeown, the ONS’s Director of Economic Statistics, expressed cautious optimism during an interview with the BBC’s Today program. She noted that despite the fall in unemployment, there are signs that the job market is “cooling,” highlighted by high numbers of vacancies, redundancies, and a growing segment of the population not actively seeking work.
ONS Urges Caution Amid Data Uncertainty
The ONS has advised against placing too much emphasis on the current employment figures, citing a lower-than-usual response rate to its Labour Force Survey over the past year. This could affect the reliability of the data, making it a less definitive indicator of labour market trends.
Chancellor Rachel Reeves acknowledged the mixed signals from the labour market, stating that the figures underscore the need for continued support to help people into employment. She hinted that these concerns would be addressed in her upcoming budget, which will involve difficult decisions on spending, welfare, and taxation aimed at stabilising the economy.
Impact on Monetary Policy and Interest Rates
The slight improvement in unemployment could influence the Bank of England’s monetary policy decisions. Earlier this month, the Bank made its first interest rate cut in over four years, lowering the rate to 5 percent from 5.25 percent. This move comes as the Bank grapples with balancing the need to control inflation against the economic pressures high interest rates impose on consumers and businesses.
The latest ONS data also shows that estimated vacancies in the UK fell by 26,000, bringing the total to 884,000 in the three months to July. This reduction in vacancies, combined with the slowing wage growth, could reassure the Bank’s Monetary Policy Committee that domestic inflationary pressures are beginning to ease.
Concerns Over Rising Inactivity Among Young People
However, not all indicators are positive. Hannah Slaughter, a senior economist at the Resolution Foundation, highlighted a concerning rise in the number of people, particularly young adults, who are neither working nor looking for work. She attributed this trend largely to long-term health issues, especially mental health problems.
Slaughter pointed out that people in their early twenties are now more likely to be out of work due to illness than those in their early forties—a trend she described as “really worrying.” She called on the government to address this issue by improving healthcare services, with a particular focus on mental health care, to help more young people enter the workforce.
As the UK navigates these mixed signals from the job market, the government’s response in the upcoming budget, along with the Bank of England’s policy decisions, will be crucial in shaping the economic outlook for the rest of the year.
Amelia Brand is the Editor for HRreview, and host of the HR in Review podcast series. With a Master’s degree in Legal and Political Theory, her particular interests within HR include employment law, DE&I, and wellbeing within the workplace. Prior to working with HRreview, Amelia was Sub-Editor of a magazine, and Editor of the Environmental Justice Project at University College London, writing and overseeing articles into UCL’s weekly newsletter. Her previous academic work has focused on philosophy, politics and law, with a special focus on how artificial intelligence will feature in the future.
