Wages Ease and Unemployment Rises as UK Employers Face Mounting Cost Pressures
Wage growth in the United Kingdom has slowed to its weakest pace since November, while unemployment continues to inch upwards—signalling a cooling labour market as businesses brace for a series of fiscal and regulatory cost increases, including a sharp rise in the National Minimum Wage and higher tax burdens.
According to the latest figures from the Office for National Statistics (ONS), regular pay excluding bonuses rose 5.6% in the three months to March 2024, down from 5.9% in the previous quarter. Total pay, including bonuses, increased by 5.5%. Both readings came in below the expectations of economists, who had forecast regular pay growth of 5.7%.
Although wage growth continues to outpace inflation—which stood at 2.6% over the same period—the slowdown is notable. This marks the twenty-second consecutive quarter where real wages (wages adjusted for inflation) showed gains, reflecting the broader trend of diminishing price pressures across the UK economy following the post-pandemic inflation surge.
In both the public and private sectors, pay grew at nearly identical rates—5.5% and 5.6%, respectively—highlighting convergence in earnings growth across segments traditionally subject to differing pay dynamics. This may point to a broader recalibration of wage expectations in light of softer labour demand and enhanced cost-awareness among employers.
Meanwhile, the UK’s unemployment rate rose to 4.5% from 4.4% previously—the highest level since late 2021. Data from HM Revenue & Customs showed a reduction of 106,000 payrolled employees compared to a year earlier, bringing the total employment figure down to 30.3 million. The economic inactivity rate, reflecting those neither working nor actively seeking work, fell slightly by 0.2 percentage points to 21.4%—still considerably above pre-pandemic levels.
The number of job vacancies declined for a 22nd consecutive month, falling by 42,000 to 761,000 in the three months to April. This figure remains well below the peak of over 1.3 million recorded in mid-2022 during the post-pandemic hiring surge. Vacancies have fallen by nearly 40% since then, illustrating a significant shift in employer sentiment.
Liz McKeown, Director of Economic Statistics at the ONS, commented: “Wage growth slowed slightly in the latest period but remains relatively strong, with public and private sectors now showing little difference. The broader picture continues to be of the labour market cooling.”
The softening in wage growth and labour market conditions comes just weeks after a steep rise in the minimum wage. From April 2024, the National Living Wage for those aged 21 and over increased by 9.8% to £11.44 an hour, part of the government’s commitment to align the minimum wage with two-thirds of median earnings. More information on the policy and historical wage changes is available via the Low Pay Commission.
At the same time, a £25 billion increase in employers’ National Insurance contributions took effect, further pressuring companies already contending with high borrowing costs, supply chain challenges, and weakened consumer demand. Industry groups, including the Confederation of British Industry (CBI), have warned these measures could stall hiring and investment.
Some economists have raised concerns about the quality of the underlying data used to assess labour market conditions. The ONS’s Labour Force Survey, a key source of employment estimates, has faced scrutiny due to declining response rates in recent years. This has prompted calls from groups such as the Institute for Fiscal Studies for enhanced transparency and methodological updates to improve reliability.
Despite these concerns, analysts see the present data as broadly signalling a shift in the economic cycle. James Smith, economist for developed markets at ING, noted: “Hiring conditions are cooling, and this is very gradually putting downward pressure on wage growth. That’s good news for the Bank of England, though it will want to see a few more months of improvement before drawing any firm conclusions.”
Matt Swannell, Chief Economic Adviser to the EY ITEM Club, echoed this cautious optimism: “While it is heading in the right direction, pay growth remains significantly above the rates the Bank of England views as consistent with inflation stabilising at the 2% target.”
These metrics are being closely scrutinised by the Bank of England’s Monetary Policy Committee (MPC) as it navigates its next decisions on interest rates. Last week, the MPC voted 5–4 to reduce the benchmark Bank Rate by 0.25 percentage points to 4.25%—its first rate cut in two years. Investors now anticipate two further quarter-point cuts before the end of 2025, though any renewed uptick in wage pressures could postpone monetary easing further.
While market response to the latest data was muted, sterling rose 0.23% against the US dollar to trade at $1
