Unemployment and economic inactivity in the UK are both continuing to rise, data from the Office for National Statistics (ONS) has shown, raising fears that economic uncertainty is still affecting the labour market.
May’s Labour market overview revealed that unemployment increased to 4.3 per cent between January and March 2024 – the highest level for seven months. While the employment rate was estimated at 74.5 per cent in the January to March 2024 quarter, the ONS said this remains below estimates of a year ago and had dropped in the latest quarter.
The inactivity rate for people aged 16 to 64 years was 22.1 per cent, down from 22.2 per cent in the previous quarter, with the claimant count – the number of people claiming unemployment-related benefits – for April 2024 increasing by 8,900 on the month and by 29,300 on the year, to 1.579 million.
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The estimated number of vacancies in the UK decreased by 26,000 to 898,000 from February to April 2024, with vacancies declining for the 22nd consecutive period but remaining above pre-pandemic levels, the ONS reported.
Tony Wilson, director at the Institute for Employment Studies, said the findings were “disappointing”.
“Overall there are now 900,000 more people out of work than before the pandemic began, with virtually all of this a result of higher economic inactivity,” he explained, adding that the three key reasons behind this were fewer older people coming back to work; more young people in education or out of work; and more people off with long-term health conditions across all ages.
“However, for all the talk about this being driven by a sick note culture, the reality is that the UK has among the lowest rates of sickness absence in the world, while our analysis shows that the growth in ill-health is being driven primarily by fewer people with health conditions coming back to work rather than more people leaving,” said Wilson.
“We need to do far more and better to make our employment services more accessible, inclusive and supportive, rather than just threatening to change the rules or cut people’s benefits.”
Julia Turney, partner and head of platform and benefits at Barnett Waddingham, said that while official unemployment rate saw a slight uptick, “a closer look at economic inactivity statistics reveals a concerning rise in individuals exiting the workforce for health-related reasons”.
She noted that there were currently more than half a million more people unemployed than before the pandemic, and said the number of 16 to 24 year olds in the UK who fall into this category was “particularly alarming”.
Nye Cominetti, principal economist at the Resolution Foundation, said: “Britain’s jobs recovery continues to falter, with the workforce shrinking by the equivalent of one million workers since pre-pandemic times. This worrying employment fall shows the damage that an economic slowdown can cause.
“The news for those in work is more positive, however, with real wages growing almost as much over the past 12 months as they did in the 16 years before this. The big question is whether the UK’s recent economic recovery will boost employment and raise output per worker, which will be needed to sustain its mini pay recovery.”
James Cockett, labour market economist at the CIPD, added that the figures highlighted “an increasing disconnect between continued strong wage growth and the loosening labour market”.
“This is characterised by slowly rising unemployment and falling vacancies, against a backdrop of weakening inflation. These factors suggest the power in the labour market is gradually shifting from workers to employers and this may start to feed into lower pay growth over coming months,” he said.
Pay growth
The ONS also found that annual growth in regular pay excluding bonuses stood at 6 per cent from January to March 2024, while annual growth in total pay including bonuses was 5.7 per cent.
In real terms, adjusted for inflation using the consumer prices index, regular pay growth was 2 per cent in the latest quarter, while total pay growth was 1.7 per cent.
The figures also showed that payrolled employees in the UK fell by 5,000 (0 per cent) between February and March 2024, but rose by 288,000 (1 per cent) between March 2023 and March 2024.
The estimated number of payrolled employees for April 2024 decreased by 85,000 (0.3 per cent) on the month, but increased by 129,000 (0.4 per cent) on the year to 30.2 million.
Cockett said: “Nominal pay growth remains stubborn at 6 per cent, unchanged on last month. Falling inflation means there has continued to be a rise in real regular pay growth, now at 2 per cent. Vacancies are now below 900,000, but still above the pre-pandemic level. We expect this level to continue to fall in 2024.”
However, he added: “We shouldn’t read into the month-to-month changes in the employment indicators because of the current reliability of estimates.
“But, taken as a whole, all indicators continue to point towards a slowing jobs market. With more people staying put, it will be important for employers to invest in workplace skills to support and develop their existing workforce.”
Meanwhile, Jack Kennedy, senior economist at global hiring and matching platform Indeed, told People Management: “Wage growth came in hotter than expected even as other indicators pointed to further clear weakening in the labour market.
“That casts doubt on a June interest rate cut and will support the case for policymakers waiting for more evidence.”
Similarly, Melanie Pizzey, CEO and founder of the Global Payroll Association, told People Management: “While unemployment statistics remain an unreliable gauge of market strength, provisional figures with regard to payrolled employee numbers show that there have been marginal declines, suggesting a further weakening in the labour market.”
