The UK’s unemployment rate stayed steady at 4.4% for the three months leading up to January 2025, with concerns rising about the broader labor market.
According to GBNews, jobless benefit claims saw a sharp increase, intensifying scrutiny of the government’s handling of the situation.
With pressure mounting on Chancellor Rachel Reeves, questions about the future of job security and economic stability are becoming increasingly urgent.
Rising Jobless Benefit Claims Highlight Concerns
While unemployment has remained steady, the number of people claiming jobless benefits surged by 44,200 in February 2025, a sharp rise compared to the 2,800 in January and well above the expected 7,900 new claimants. This uptick has fueled fears about the broader health of the labor market, as the economy faces continued challenges.
One of the few bright spots in the latest report is the growth in average earnings, which increased by 5.9% year-on-year. This has been particularly beneficial for workers, with real wages rising by 3.2% after accounting for inflation. However, experts warn that this growth could create inflationary pressures, limiting the potential for interest rate cuts.
“Elevated wage growth is a double-edged sword for the economy because, while it’ll help boost consumer spending – a key driver of economic growth – it may limit the pace of interest rate cuts by fuelling fears over rising inflation.” said Suren Thiru, The economics director at the ICAEW.
Concerns Over National Insurance Increase and Its Impact
A key issue ahead is the government’s planned £25 billion increase in employer National Insurance contributions, set to take effect in April 2025. Several businesses have already warned that this change could trigger job losses and price hikes, which could harm the economy.
The higher costs for businesses could have a significant impact on household budgets, as many companies plan to pass on rising costs to consumers.
“When you consider the inflationary impact the Chancellor’s impending tax measures will have for businesses, with a number of major companies already announcing plans to pass on rising costs to consumers, the outlook from here for household budgets is far from rosy.” stated Alice Haine, Personal Finance Analyst at Bestinvest.
“Add in the hit from rising household bills, with energy, water, and council tax charges all set to go up from April 1, along with rising concerns about job and income security, and households are likely to be feeling very worried once again.”
Outlook for Bank of England’s Interest Rates
The combination of resilient wage growth and inflationary concerns is posing a challenge for the Bank of England. The central bank, which has struggled with lackluster growth in recent months, faces a difficult decision on interest rates. With the headline inflation rate creeping back up, markets are expecting the Bank of England to hold interest rates at 4.5% for the time being.
“Resilient wage growth poses a problem for the Bank of England as it mulls what action to take on interest rates later today”. said Haine.
Experts fear that the Chancellor’s tax policies, especially the rise in National Insurance contributions, could have an additional negative impact. According to Thiru, this Could well trigger both moderately higher unemployment and weaker pay settlements. Further complicating the outlook for the UK economy.
Employment Figures and the Broader Labour Market
Despite the economic challenges, 144,000 new jobs were created in January, up from 107,000 in December. The number of job vacancies has continued to decrease since 2022 but is now stabilizing at around 816,000, which is comparable to pre-pandemic levels from early 2020.
Payroll data also showed that 21,000 more workers were added to UK payrolls in February, bringing the total to 30.4 million. These figures suggest a complex labour market with steady unemployment, rising benefit claims, ongoing job creation, and strong wage growth despite the broader economic challenges.
