UK unemployment sticks at 4.4% as pressure mounts on Rachel Reeves over jobs crisis

Despite concerns about economic stagnation, average earnings—excluding bonuses—grew 5.9 per cent year-on-year, with real wages rising 3.2 per cent after inflation.

While this offers some relief to workers, it adds pressure on the Bank of England as it considers its next move on interest rates.

Suren Thiru, the economics director at accountancy body the ICAEW, said the figures suggest falling business confidence meant the UK’s jobs market had little momentum.

He said: “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.”

He said a rise in employers’ national insurance next month “could well trigger both moderately higher unemployment and weaker pay settlements”.

Rachel Reeves' £25 billion increase in employer National Insurance contributions is set to take effect in April, raising concerns about its impact on hiring.

Several firms have warned of job losses and price hikes ahead of the National Insurance rise, coupled with the minimum wage increase also set to take effect next month.

Despite unemployment remaining steady, jobless benefit claims surged by 44,200 in February 2025, a sharp rise from 2,800 in January and well above the expected 7,900 new claimants.

Employment figures for January showed 144,000 more people in work, up from 107,000 in December, suggesting continued job creation.

While job vacancies have steadily declined since 2022, they now appear to be stabilising at around 816,000, aligning with pre-pandemic levels from early 2020.

There was also a positive shift in payroll data, with 21,000 more workers added to UK payrolls last month, bringing the total to 30.4 million, following a 9,000 increase in January.

These figures paint a complex picture of the labour market—steady unemployment, a spike in benefit claims, ongoing job creation, and resilient wage growth amid economic uncertainty.

Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, the wealth manager said: "Resilient wage growth poses a problem for the Bank of England as it mulls what action to take on interest rates later today.

"The UK economy has been grappling with lacklustre growth in recent months, but the central bank’s mission is to keep inflation at bay and with the headline rate creeping back up again recently, markets are expecting interest rates to remain on hold at 4.5 per cent.

"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.

"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."

Liz Kendall, Work and Pensions Secretary said the latest figures show "the scale of the challenge" in getting Britain back to work. She announced £1 billion in extra support for sick and disabled jobseekers and highlighted reforms like the National Minimum Wage increase and Employment Rights Bill to "make work pay and improve job security."

Kendall also noted real wages are rising at their fastest rate in three years, worth "an extra £1,000 a year" for workers. She said these measures are part of a wider plan to "boost economic growth, drive up living standards, and tackle the spiralling benefits bill."