UK Labour Market Cools Amid Rising Unemployment and Robust Wage Growth

Britain’s labour market showed signs of cooling in April as the unemployment rate rose to 4.4%, despite strong wage growth, creating challenges for Prime Minister Rishi Sunak ahead of the July 4 election. The number of employed people has fallen while inactivity rates have increased, indicating inflation pressures.

Britain's labour market showed more signs of cooling in April as the unemployment rate rose, an awkward development for Prime Minister Rishi Sunak ahead of the July 4 election, despite another month of strong wage growth. Official data on Tuesday showed the jobless rate for the three months to April rose to 4.4% from 4.3% between January and March, the highest reading since the three months to September 2021, the Office for National Statistics said.

A Reuters poll of economists had forecast an unchanged unemployment rate. "This month's figures continue to show signs that the labour market may be cooling, with the number of vacancies still falling and unemployment rising, though earnings growth remains relatively strong," the ONS said.

The number of employed people has fallen by 207,000 since the end of 2023, while unemployment has increased by 190,000, the data showed. The opposition Labour Party is on course to win the national election on July 4 according to opinion polls which give Keir Starmer's party a roughly 20-point lead over the governing Conservative Party.

Sunak, whose pitch to voters rests on the idea that the economy is improving under his management, can at least point to a robust increase in wages, adjusting for inflation. Average weekly earnings excluding bonuses, and adjusted for the consumer prices index, rose by 2.3% in the three months to April compared with a year ago - the strongest such reading in nearly three years.

Britain's inactivity rate - measuring people not in work and not looking for employment - rose to 22.3%, its highest since mid-2015, highlighting what the Bank of England sees as a source of inflation in the labour market. Media reports said Sunak was expected to announce later on Tuesday that he would cut social security contributions by a further two percentage points if his Conservative Party defies the opinion polls and wins the election.

Cuts to National Insurance contributions are seen as a way to encourage more people into the labour market, although two recent two-point cuts have failed to stem the rise in inactivity. Wage growth data, a key gauge of inflation pressure for the BoE which is due to make its next policy announcement on June 20, remained hot.

Nominal average weekly earnings excluding bonuses grew by 6.0% in the three months to the end of April compared with the same period a year earlier. Economists polled by Reuters had forecast wage growth of 6.1%.

Wage growth in the private sector - also watched closely by the BoE as a gauge of domestic inflation pressure - cooled to 5.8% from 5.9% in the three months to April.

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