Jobless rate falls but due to rise as demand slows – Daily Business

Payrolls fell in March as the Iran War affected hiring

Unemployment unexpectedly fell in the three months to February, though the disruption caused by the Iran conflict is likely to see it rise again in the coming months.

The jobless rate fell to 4.9% in the period, which surprised analysts who were predicting the rate would remain unchanged at 5.2%.

However, the figures from the Office for National Statistics (ONS) showed that the number of workers in payrolled employment slipped by 11,000 in March, the first piece of data that covers the period of the Iran war.

The ONS also said that wages rose at an annual pace of 3.6% between December and February, the weakest pace since late 2020. However, despite the slowdown, pay is still rising faster than inflation.

Yael Selfin, chief economist at KPMG UK, said the jobs market “showed signs of stabilising in February, but a reversal may be on the horizon.

“Unemployment fell slightly to 4.9% in the three months to February, consistent with survey evidence suggesting hiring activity was recovering before the conflict in the Middle-East.

“However, unemployment is likely to trend higher in the coming months as firms scale back on hiring in response to rising costs and weaker demand.”

Luke Bartholomew, deputy chief economist, at Aberdeen Group, said: “While the sharp drop in unemployment reported today is certainly eye catching, it will probably be largely dismissed by the market.

“That’s partly because it only covers a period up to the end of February, so before the Iran conflict, and also because it largely seems to reflect rising inactivity rather than stronger hiring.

“Indeed, the timelier payrolls data, which covers March and so should capture some of the early impact of the war, remains weak, falling once again.

“Meanwhile, with cash wages continuing to moderate and inflation set to increase sharply in the coming months, it is likely households are about to experience another period of negative real wage growth, which will weigh further on growth.

“Tomorrow’s inflation data will help give a sense of how quickly the energy price shock is working its way through the economy, but unless there is a much larger and broader than expected surge in price pressures, then the Bank of England will likely keep rates on hold later this month.”

Scottish Friendly’s savings specialist Kevin Brown said: “Falling wage growth, albeit modest, will be welcomed by the Bank of England, especially at a time when global energy costs are rising due to tensions in the Middle East.

“That said, today’s news will do little to alter the course of interest rates. The broader environment remains too uncertain, and the Bank’s rate-setters will want to avoid doing anything that will stoke inflation or pile unnecessary pressure onto an already fragile economy.

“While the jobs market has proven fairly resilient of late, it is showing signs of strain. If geopolitical tensions persist, unemployment is likely to rise considerably, which would further complicate the outlook for interest rates.

“For savers, the environment remains supportive in the short term, but households should not assume it will last. Protecting cash returns and considering longer-term investment strategies remains sensible in an uncertain inflation backdrop.”

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