The UK unemployment rate dropped to 4.9% in the three-month period ending February, down from 5.2% in the previous three months, as reported by the Office for National Statistics. During the same period, average wages increased by 3.6%, slightly lower than January’s 3.8% growth and the lowest since November 2020. Bonus-inclusive pay also rose by 3.8%, surpassing expectations.
These statistics predate the full impact of the Middle East conflict, which experts fear may drive up inflation and potentially lead to increased unemployment as businesses facing rising costs may reduce hiring. Wage growth in the public sector averaged 5.2%, while the private sector saw a growth rate of 3.2%.
In the latest quarter, the estimated number of job vacancies decreased, marking a departure from almost stagnant levels since March to May 2025. Preliminary estimates for January to March showed a decrease of 29,000 vacancies (3.9%) to 711,000, the lowest level since February to April 2021.
Liz McKeown, ONS Director of Economic Statistics, noted that while the number of workers on payroll remained stable, indicating weak hiring trends, vacancies hit a five-year low. Despite the drop in unemployment, there was an increase in the number of people not actively seeking work, potentially due to fewer students seeking employment alongside their studies. Wage growth has slowed significantly, reaching its lowest point in over five years.
Yael Selfin, KPMG UK’s chief economist, highlighted that wage growth was decelerating prior to the Middle East conflict. The current state of the labor market, with limited bargaining power for workers, reduces the risk of a wage-price spiral. Unemployment fell slightly to 4.9% in the period leading up to February, aligning with survey data indicating a recovery in hiring before the conflict. However, unemployment is expected to rise in the future as businesses adjust to higher costs and weaker demand.
Pay growth decreased to 3.6% in the three months to February, down from 3.8% in January, mainly driven by a slowdown in public sector pay increases. Economic activity is likely to further dampen pay growth in the upcoming months, potentially squeezing real wages due to increasing household costs.
Luke Bartholomew, deputy chief economist at Aberdeen, highlighted that while the reported drop in unemployment is noteworthy, the market may not heavily weigh this data as it predates the Middle East conflict and may reflect rising inactivity rather than strong hiring. With payrolls data for March indicating continued weakness, coupled with expectations of rising inflation, households may face a period of negative real wage growth, further impacting economic growth.
These insights precede the release of crucial inflation data by the ONS, anticipated to capture the early effects of the Middle East conflict in March.
