Unemployment crept back up despite a fall in last month’s data as it was shown that the UK jobs market weakened in the last quarter.
The Office for National Statistics said the UK unemployment rate was five per cent in the three months to March 2026. The unemployment rate had dropped to 4.9 per cent in last month’s release.
The youth unemployment rate also climbed to 16.2 per cent as activity rates for the age group also fell.
WPI Strategy economist Martin Beck pointed out the fall in payrolled employees for those under the age of 35 was sharper, dropping by 296,000 since October 2024 compared to a rise of 18,000 for older workers.
“In other words, the slowdown is not being felt evenly. Younger workers continue to bear the brunt of a cooling labour market,” Beck said.
Vacancies also declined further to a five-year low, uncovering the difficulties faced by job seekers in a weakened market.
The number of payrolled employees fell by 20,000 over the quarter and an early estimate for the three months to April suggest there could be a fall of 100,000 over three months.
Pay growth fears mount
Bank of England officials may have taken greater notice of new wage growth figures that could concerns some policymakers.
Including bonuses, wage growth was higher than expected at 4.1 per cent. Pay growth over the three months to march was 3.4 per cent per cent when bonuses were stripped from the figure, matching predictions set by economists.
“Latest figures suggest the labour market remains soft, with vacancies at their lowest level in five years and unemployment higher than a year ago,” said Liz McKeown, director of economic statistics.
The latest set of job numbers provide some further context on the state of the British economy after the first quarter of the calendar year.
Jack Kennedy, senior economist at Indeed said youth unemployment was a “flashing warning signal”.
“Vacancies are falling, payrolled employment is declining, and the jobless rate is rising – a combination that signals the squeeze on businesses from rising costs and uncertainty is now feeding through into tangible job market deterioration,” Kennedy said.
“The spike in joblessness among young people is a reminder that the workers at the beginning of their careers feel these pressures first and hardest.”
GDP figures separately gave Rachel Reeves a boost as the ONS estimated that the economy grew by 0.6 per cent in the first three months of the year.
Forecasts for the jobs market have been mixed, with economists at the Office for Budget Responsibility and the Bank of England pencilling in a peak unemployment rate of around 5.3 per cent.
Some City analysts have warned that joblessness could rise higher.
Welfare secretary Pat McFadden said a rise in the employment rate was “encouraging” yet the war in the Middle East was “casting a shadow on the labour market”. Shadow business secretary Andrew Griffith blamed the weakening on the Labour government’s policies.
Job market crunch
Monetary Policy Committee members, who set interest rates every six weeks, will be closely eyeing any signs of pay pressures.
This focus on wages comes as economists fear that the rise in inflation from the Iran war could push up salaries, leading to a spiralling effect in price pressures.
The International Monetary Fund said the Bank would not have to raise interest rates this year despite predictions of a hike by a number of City firms.
The IMF warned that interest rates heavily depended on whether data kept in line with expectations.
Both economists at the Bank and across private sector companies will now be looking out for government reforms expected on welfare.
Neets crisis ‘worse than thought’
The first batch of research from the Alan Milburn review into young people not in education, employment or training (Neets) is expected to be published in days, setting out possible job market reforms to be introduced by any Labour leader.
Before Tuesday’s jobs data, a report by the Institute for Fiscal Studies found that only half of young people were on the payroll as the Neets crisis has been worse than expected.
According to the think tank, just 50.6 per cent of 16 to 24-year-olds were in employment between late 2022 and 2025.
This compared to a previous share of 54.9 per cent.
Two thirds of the population were in the labour force while nearly one in nine young people or 640,000 people, claimed an out of work benefit, research found.
Jed Michael, research economist at IFS and an author of a report on Neets, said there was a lack of evidence to show why the Neets crisis was worse than previously expected.
“The job of the Milburn review is made much harder by a lack of clarity as to what is driving the fall. While it does not seem to be down solely to a temporary cyclical downturn in the economy, more evidence is needed to understand the roles of minimum wages, youth mental health, AI and other factors,” Michael said.
