The UK job market appears to be weakening as the unemployment rate rose to 4.2% between December and February, marking the highest level in six months, according to the Office for National Statistics (ONS).
This increase from the previous rate of 3.9% in January surpassed economists' expectations, which had predicted a rise to 4%. Employment figures also decreased, with the employment rate dropping to 74.5% and the number of economically inactive individuals - those not working nor seeking work - increasing from 21.8% to 22.2%.
This change equates to about 9.4 million people, predominantly made up of those aged 16 to 34. The number of job vacancies also declined to 916,000, although still higher than pre-COVID levels.
While average wage growth excluding bonuses slightly decreased from 6.1% to 6%, it remains above expectations. Real wages, when adjusted for inflation, saw an increase of 1.9% over the same period, the highest since September 2021. However, a freeze in income tax thresholds until 2028 could lead to higher tax brackets as wages increase, potentially impacting take-home pay.
The cooling job market and wage trends may influence the Bank of England to consider lowering interest rates this summer, especially as inflation has decreased from a peak of 11.1% in October 2022 to 3.4% by February, with further reductions anticipated. Maintaining inflation at the Bank's 2% target remains a challenge, particularly if wage growth continues, which could stimulate inflationary pressures further.
The ONS has cautioned that these statistics are based on a smaller sample size than before the pandemic and should be interpreted cautiously.
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