Unemployment in the UK is stuck at 5.2 per cent, while wage growth has fallen to the lowest level in more than five years as the jobs market remains stuck at the start of 2026.
The figures from the Office for National Statistics (ONS) show earnings growth is at 3.8 per cent for the three months through to January – the lowest since November 2020.
While rising earnings are naturally needed for households’ progression, if they rise too fast too soon they can add inflationary pressures to the wider economic situation, meaning it has been a carefully watched metric for the Bank of England (BoE) of late.
Wage growth falling back, combined with still-high unemployment and a stagnant economy, would likely have seen the BoE’s Monetary Policy Committee (MPC) vote for an interest rate cut on Thursday – but the situation in Iran is set to scupper that as rising oil and gas prices, feeding through to higher energy bills, will add a new inflation worry for the UK.
In turn, that means interest rates will need to stay higher to combat that inflation prospect, and potentially even creep higher if the situation is prolonged.
The rate of unemployment remained at a near five-year high of 5.2% in the three months to January as the ONS also said vacancies dropped by 6,000 to 721,000 in the three months to February. But most economists had expected the jobless rate to have risen to 5.3%, while there was also a 20,000 estimated increase in workers on payrolls last month.
“There are some tentative signs of stabilisation in the data with the unemployment rate a little better than the anticipated rise to 5.3%,” said Rob Morgan, chief investment analyst at Charles Stanley.
“Elsewhere, wage growth is losing momentum, and outside the public sector, pay gains are now fading rapidly, aligned with a cooling economy. This is unsurprising as greater numbers of unemployed individuals competing for fewer vacancies points towards pay growth slowing – something likely to continue in the coming months.
“The muted jobs market is reflecting employer nerves and that the broader economy is losing steam. Higher taxes and an expanding regulatory load are giving businesses pause for thought, making them more cautious around hiring or replacing staff.
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“Worryingly, the subdued picture is a snapshot well before the current Iran conflict and resulting energy price squeeze, which is likely to further weigh on growth and undermine confidence. A quick resolution of the crisis will go some way to relieving the situation, but a drawn-out conflict and tight energy market would darken the economic and employment outlook even more.”
Liz McKeown, director of economic statistics at the ONS, said: “Labour market conditions were little changed at the start of the year.
“The number of workers on payroll rose slightly in the latest month but, overall, the recent picture has been broadly flat.”
She added: “Regular wage growth is at its lowest rate in more than five years, with pay growth in both the private and public sectors continuing to ease.”
Additional reporting by PA