The UK’s unemployment rate rose to 4.7 percent in the three months to May, according to figures released by the Office for National Statistics (ONS) on Thursday, marking the highest level since late 2021 and reinforcing expectations that the Bank of England could lower interest rates as soon as August.
Headline ONS data show a softening labour market on several fronts. While the employment rate for those aged 16–64 ticked up to 75.2 percent, the number of payrolled jobs declined by 25,000 month-on-month in May, with a total year-on-year drop of 135,000. Meanwhile, the claimant count rose to 1.743 million in June — its highest level since January 2024.
Wage pressures are also moderating. Regular and total pay both rose by 5.0 percent year-on-year — the slowest pace since mid-2022 and a third consecutive deceleration — while real regular pay, adjusted for CPIH inflation, grew by 1.1 percent. The ONS noted that “pay growth fell again in both cash and real terms, but remains relatively strong by historic standards,” according to Liz McKeown, ONS director.
Vacancies have now fallen for nine straight quarters, dropping by 56,000 on the quarter to 727,000 — a 16.9 percent decline from a year ago and the steepest three-year slide since the global financial crisis. The ratio of unemployed people to vacancies has risen to 2.2, the highest since the 2020 lockdowns, with professional services and IT seeing the largest vacancy declines, while only health and social care posted year-on-year growth.
Economists see the data as a pivotal moment for the Bank of England. After June’s hold, markets now price in an 85–90 percent chance the Bank will lower its policy rate by 0.25 percentage points to 4 percent at its next meeting on 7 August, despite an inflation reading of 3.6 percent this week. “With vacancies diving and payrolls tumbling, today’s release seals an August cut — the debate is how fast the Bank can follow up,” said analysts at Pantheon Macroeconomics. Capital Economics now forecasts two rate cuts by November, while ING noted that sterling’s resilience “will rely on services CPI; if pay slows further the pound could test $1.32 into the MPC.”
Market reaction was swift. Sterling slid 0.3 percent to $1.337 following the jobs print, two-year gilt yields fell by 8 basis points to 4.36 percent, and the FTSE 100 rose 0.2 percent, with defensive stocks offsetting the pound’s dip. Traders said the combination of softening employment data and easing pay growth gives the Bank of England scope to move on rates, even as inflation temporarily overshoots its target.
The ONS stressed continued volatility in its Labour Force Survey figures, noting that reliability has improved since changes made in January 2025, but that “volatility will remain through 2025; use alongside PAYE and vacancies data.”
The broader context remains mixed. Economic inactivity has edged lower to 21.0 percent, largely due to more under-25s returning to work, though the number of people out of the workforce due to long-term sickness remains near a record 2.83 million. For the new Labour government, which pledged to “kick-start growth” in its first 100 days, the latest data underlines both the urgency and the challenge of reviving the economy amid a rising jobless rate. A Treasury source told The Times the figures “underline the urgency of NI cuts,” though this comment was not independently verified.
The Bank of England’s policy trajectory appears to be following an “every-other-meeting” pattern hinted at by Governor Andrew Bailey earlier this month. With the last cut in 2023 and inflation only recently cooling, August’s decision will be closely watched as the UK navigates a period of elevated economic uncertainty.
