UK unemployment rate eases to 3.8%

The UK unemployment rate eased at the end of last year, official data showed on Tuesday, while average earnings continued to rise.

According to the latest figures from the Office for National Statistics, the unemployment rate was 3.8% for those aged 16 and over in the three months to December.

That was down on November’s rate of 4.2% and below consensus for 4.0%.

The economic inactivity rate was 21.9%, up from 20.9% in November. The ONS said the increase was driven by the number of people who are long-term sick, which remains at "historically" high levels.

The claimant count for January increased by 14,100 on the month, or by 61,200 on the year, to 1.579m. The employment rate was 75.0%.

Vacancies, meanwhile, fell by 26,000 in the quarter, to 932,000. It is the nineteenth consecutive month vacancies have fallen, although they still remain above pre-pandemic levels.

Wage growth beat forecasts. Annual growth in employees’ average regular earnings, excluding bonuses, was 6.2%, in contrast to consensus for 6.0%. Including bonuses, wages grew by 5.8%.

Both measures were down on November, however, when total pay rose by 6.7% and regular pay by 6.6%

Annual growth in real terms, which is adjusted for inflation, for total pay in December was 1.4% and 1.8% for regular pay.

A total of 108,000 working days were lost in December because of labour disputes.

The ONS is currently changing its methodology, after too few people responded to the surveys. It therefore noted that Labour Force Survey estimates should be treated with “additional caution” because of the smaller sample sizes.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Official data continue to suggest that the labour market remains tight, though their veracity remains questionable. The latest LFS estimates are based on th ONS’s new population projections, but work to boost the response rate remains incomplete.

“Accordingly, the ONS says that the data should be treated with additional caution.

“The recent dip in the unemployment rate, from its post-Covid peak of 4.3% in July, looks particularly suspect. Many surveys indicate that staff availability for vacancies has improved.”

Ashley Webb, UK economist at Capital Economics, said: “While wage growth fell further in December, evidence that the labour market may not be loosening much suggests wage growth may not fall as fast as we expect.

“Overall, a slower than expected easing in wage growth may, at the margin, mean the Bank of England doesn’t need to rush to cut interest rates. But much will depend on broader price pressures.”