Unemployment drops sharply as inactivity in jobs market rises

The UK unemployment rate has fallen unexpectedly to its lowest level since last summer as inactivity in the jobs market increases and vacancies tumble, according to official figures.

The Office for National Statistics (ONS) said the rate of UK unemployment dropped sharply to 4.9% in the three months to February, down from 5.2% in the three months to January and lowest since August last year.

Most economists had expected the jobless rate to remain unchanged.

The ONS said the fall was driven by a rise in inactivity, especially among students, which lifted by 70,000 in the quarter.

The figures also showed average regular wage growth dropped further, to 3.6% in the three months to February, down from 3.8% in the previous three months and remaining at the lowest level since November 2020.

Earnings are still outstripping inflation, rising by 0.4% with the Consumer Prices Index (CPI) taken into account, but this is the lowest real growth for more than two-and-a-half years.

Vacancies also plunged by 29,000 in the three months to 711,000 – now the lowest level since April 2021.

Liz McKeown, ONS director of economic statistics, said: “Alongside falling unemployment, the number of people not actively seeking work increased, with data suggesting fewer students seeking work alongside their studies.

“Regular wage growth has slowed further with growth at its lowest rate in over five years.”

While the jobless rate fell, the ONS cautioned the figures should be treated with caution given an overhaul to the way the figures are collected.

More timely data estimated the number of workers on UK payrolls dropped 11,000 month-on-month in March to 30.3 million, though this is subject to revision.

This follows a revised 6,000 drop during February, against the 20,000 increase previously estimated.

The data comes amid fears of a spike in unemployment as the Iran war takes its toll on the UK economy, with the Item Club forecasting the jobless rate will surge to 5.8% by the middle of 2027, with almost 250,000 more people without a job.

Work and Pensions Secretary Pat McFadden said: “We cannot escape the effects of the war in the Middle East which are likely to feed through to prices and employment in the coming months.

“We will do everything we can to support the country through this period.”

But the Conservatives took aim at the rise in inactivity and recent wage tax hikes.

The inactivity rate increased to 21% in the three months to February, up from 20.7% in the previous three months and the highest level for over 18 months.

Shadow work and pensions secretary Helen Whately said: “This month’s dip in unemployment is outweighed by the rise in people who are economically inactive, who have left the labour market altogether.”

She added: “Labour’s taxes and red tape have killed opportunity for many thousands of people.”