UK unemployment increases as wages grow at a record rate

UK unemployment has increased in the three months up to the end of June, while wages have grown at a record annual pace, as the economy has been grappling with high inflation.

According to official data showed Tuesday, the number of unemployed people increased to 4.2 percent compared to 4.0 percent in the three months to the end of May, the Office for National Statistics (ONS) said.

The rise is "mainly due to people taking slightly longer to find work than those who started job hunting in recent months," said Darren Morgan, director of economic statistics at the ONS.

He added that the number of people "prevented from working by long-term sickness has risen again to a new record".

The UK finance ministry noted that Britain's unemployment rate was lower than that of Canada, France, Italy, Spain and the Euro area.

Even though the current unemployment rate is the highest it has been since the timeframe between July and September 2021, the ministry has appended that it still holds a position considered "low when viewed within historical standards."

The statistics from ONS also revealed that regular pay, excluding bonuses, exhibited a growth of 7.8 percent in the three months leading up to the end of June, in comparison to the corresponding period from the previous year.

This is the highest annual growth rate since comparable records began in 2001. "Coupled with lower inflation, this means the position on people's real pay is recovering and now looks a bit better than a few months back," Morgan said.

UK annual inflation stands at 7.9 percent, the highest among G7 nations, while the Bank of England is tasked by the UK government with keeping annual inflation at around two percent.

Further rate hike

After raising its key interest rate multiple times since late 2021, the Bank of England is expected to continue raising rates in response to the latest data, as forecasted by analysts.

"The fall in employment in the three months to June and a further rise in the unemployment rate will be welcomed by the Bank of England as a sign labour market conditions are cooling," said Ruth Gregory, deputy chief UK economist at Capital Economics.

But she added that with wage growth still accelerating, the Bank of England is likely to increase its key rate to 5.5 percent "before it brings its tightening cycle to a close".

"There was always the likelihood that today's unemployment and wages numbers would give the Bank of England a headache when it comes to deciding what to do when it comes to further rate increases," said Michael Hewson, chief market analyst at CMC Markets UK.

"And this morning's numbers have not just given the central bank a headache, but a migraine," he added.

For Susannah Streeter, head of money and markets at Hargreaves Lansdown, the record annual wage growth means another rate hike from the Bank of England "looks bolted on in September".

In a report by the Chartered Institute of Personnel and Development (CIPD) on Monday, it was revealed that 40 percent of UK employers facing ongoing labour shortages have provided increased salaries in their counteroffers.

Amidst a significant cost-of-living crisis, workers across various sectors have engaged in industrial action seeking pay increases.

According to ONS data, labour disputes resulted in 160,000 lost working days in June, with more than half of these occurring within the health and social work industry.