The UK’s labor market has been a bright spot in the country’s economic recovery from the COVID-19 pandemic. However, new data released by the Office for National Statistics (ONS) shows that the unemployment rate rose unexpectedly in the three months to February, climbing to 3.8% rather than holding at January’s 3.7%. This is the highest level since the second quarter of 2022 and suggests that the country’s red-hot labor market may be loosening.
The Rise in UK Unemployment Rate
According to the ONS, the number of people unemployed in the UK rose by 27,000 to 1.03 million in the three months to February. This was the third consecutive month of rising unemployment, and the unemployment rate now stands at 3.8%, up from 3.7% in January. Economists had expected the rate to remain unchanged.
The ONS also reported that the number of people in work fell by 36,000 to 32.17 million in the three months to February, the largest drop since mid-2020. The employment rate now stands at 74.2%, down from 74.4% in January.
The data suggests that the UK’s red-hot labor market may be starting to cool. The country’s labor market had been a bright spot in the country’s economic recovery from the COVID-19 pandemic, with unemployment falling to its lowest level since the mid-1970s in the last quarter of 2022. However, the rise in the unemployment rate suggests that the labor market may be facing headwinds.
Annual Pay Growth Remains Strong
Despite the rise in the unemployment rate, annual pay growth in the UK remains strong. According to the ONS, annual pay growth for the three months to February came in at 5.9%, well above the 5.1% forecast and the same as the revised higher January figure.
The data suggests that employers are still willing to pay a premium for workers in a tight labor market, even as the overall number of people in work falls. However, the data also raises questions about whether the strong pay growth will continue if the labor market continues to cool.
Conclusion
The rise in the UK’s unemployment rate to 3.8% in the first quarter of 2023 is a worrying sign for the country’s labor market, which had been a bright spot in the country’s economic recovery from the COVID-19 pandemic. However, annual pay growth remains strong, suggesting that employers are still willing to pay a premium for workers in a tight labor market. It remains to be seen whether the rise in unemployment is a temporary blip or the start of a longer-term trend.
