Unemployment in the UK rose to a four-year high of 4.7% in May, according to new figures from the Office for National Statistics (ONS), fuelling expectations that the Bank of England could cut interest rates again in August.
The increase from 4.6%—which caught economists and the Bank itself by surprise—comes alongside signs of a broader slowdown in the labour market, with wage growth easing and payroll numbers shrinking. The data reinforces concerns that the UK economy is losing momentum, and strengthens the case for further monetary easing to avoid a deeper downturn.
Average weekly earnings (excluding bonuses) fell to 5% from 5.3%, while wages including bonuses also dipped from 5.4% to 5%, broadly in line with forecasts. Meanwhile, the latest payroll estimates show a monthly fall of 41,000 jobs in June, following a revised 25,000 drop in May. Over the past year, payrolls have contracted by 178,000, or 0.6%, with much of the decline concentrated in the months following the government’s hike in national insurance contributions.
Governor Andrew Bailey said earlier this week that the Bank is “ready to act” if the labour market deteriorates further. Since the start of 2025, the Monetary Policy Committee (MPC) has already cut interest rates twice, bringing them down from 5.25% to 4.25%. Financial markets are now pricing in a third cut to 4% at the Bank’s next meeting in August.
However, the MPC faces a delicate balancing act. June’s inflation figures showed consumer prices rising by 3.6%, up from 3.4% the previous month, well above the Bank’s 2% target. Despite this, private sector wage growth on an annualised basis has fallen to 3.7%—a figure rate-setters will take some comfort from, as they aim for a sustainable level of 3% wage growth to align with their inflation target.
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