The UK unemployment rate rose to 4.6% in the three months to April 2025, as reported by the Office for National Statistics (ONS), matching market expectations. This is an increase from 4.5% in the previous period (January to March 2025), marking the highest level in nearly four years. Despite the rise, wage growth remained robust, with average earnings including bonuses increasing by 5.3% year-on-year and excluding bonuses by 5.2% year-on-year, though both figures were slightly below estimates of 5.5% and 5.4%, respectively.
Employment rose by 89,000, exceeding expectations of a 40,000 increase. However, the labour market shows signs of cooling, with job vacancies falling by 42,000 to 761,000 in February to April 2025, and payrolled employees decreasing by 33,000 in April. The ONS notes that Labour Force Survey data should be interpreted cautiously due to low response rates. The rise in UK unemployment to 4.6% (three months to April 2025) signals a cooling labour market, with implications for economic policy, businesses, and households.
The Bank of England (BoE) faces a complex decision. Robust wage growth (5.3% including bonuses, 5.2% excluding) could sustain inflationary pressures, potentially delaying interest rate cuts. However, rising unemployment and falling vacancies (down 42,000 to 761,000) suggest weakening demand, which might push the BoE toward loosening policy to stimulate growth. Higher unemployment may increase pressure on public finances due to rising welfare costs (e.g., Jobseeker’s Allowance). The government may need to balance this with targeted interventions, such as job creation schemes or training programs, to address structural unemployment.
The decline in vacancies and payrolled employees (down 33,000 in April) indicates businesses are scaling back hiring, possibly due to economic uncertainty or high borrowing costs. Sectors like retail, hospitality, and construction, which are sensitive to economic cycles, may be hit hardest. Despite the unemployment rise, strong wage growth suggests businesses still face labour cost pressures, particularly in sectors with skill shortages (e.g., technology, healthcare). This could squeeze profit margins unless offset by productivity gains.
Rising unemployment reduces household income for affected workers, exacerbating the cost-of-living crisis, especially with inflation still above the BoE’s 2% target (recent CPI data estimated around 2.3%). Even with wage growth, real income gains are eroded for many. A cooling labour market may increase job insecurity, reducing consumer confidence and spending, which could further slow economic growth.
The data suggests a shift toward a less tight labour market compared to post-COVID highs. Persistent low vacancies and rising unemployment could indicate mismatches between worker skills and job requirements, necessitating retraining programs. If unemployment continues to rise, younger workers and those out of work for extended periods may face greater challenges re-entering the labour market, risking long-term economic scarring.
London and the Southeast typically have lower unemployment rates due to diverse economies and higher demand for skilled labour. In contrast, regions like the Northeast, Wales, and parts of the Midlands often face higher unemployment, driven by reliance on declining industries (e.g., manufacturing). ONS data from 2024 showed the Northeast’s unemployment rate at 5.2%, compared to 4.1% in the Southeast. This gap may widen as vacancies fall.
Urban areas with access to service-based industries (e.g., finance, tech) tend to have more job opportunities than rural areas, where job losses in agriculture or small-scale manufacturing hit harder. High-skill sectors (e.g., tech, professional services) continue to see wage growth and demand, while low-skill sectors (e.g., retail, hospitality) face job cuts and stagnant real wages. The 5.2% wage growth in regular pay is skewed toward higher earners, with lower-wage workers seeing smaller gains after inflation.
Public sector employment has been more stable, with fewer job losses compared to the private sector, where vacancies have dropped significantly. However, public sector wage growth (e.g., NHS, education) often lags behind private sector increases. Younger workers (16-24) face higher unemployment rates (historically around 12-14% vs. 3-4% for 25-64-year-olds) and are more likely to work in precarious, low-wage sectors like hospitality. The rise in unemployment could disproportionately affect them, limiting career progression.
Ethnic minorities and women often face higher unemployment rates. ONS data from 2024 showed Black workers with an unemployment rate of 6.8% compared to 3.9% for White workers. Women, particularly those in part-time roles, may also face greater job insecurity as vacancies decline. Strong nominal wage growth benefits higher earners, who are more likely to work in sectors with bargaining power. Low earners, reliant on minimum wage or gig economy jobs, face weaker income growth and higher job loss risks, widening income inequality.
Households with savings or assets can weather unemployment better than those without, deepening wealth disparities. Rising unemployment may force low-income households to deplete limited savings or rely on debt. The UK’s unemployment rise to 4.6% reflects a labour market at a turning point, with cooling demand and persistent wage pressures complicating policy responses. The BoE may delay rate cuts to curb inflation, but this risks further job losses.
The data underscores stark divides—regional, sectoral, demographic, and income-based—that could widen without targeted interventions. Policies like regional job creation, skills training, and support for vulnerable groups (e.g., youth, low-skill workers) could mitigate these challenges. However, the government must navigate fiscal constraints and global uncertainties to address both immediate and structural issues.
