UK unemployment rate falls to 4.9% and wages grow more than expected

unemployment fell and wages increased in April, official figures showed, putting pressure on the Bank of England to raise interest rates despite a peace deal in the Middle East.The latest figures from the Office for National Statistics (ONS) showed unemployment slipped to 4.9% in the three months to April from 5% in the three months to March.Average wages excluding bonuses remained the same at 3.4%, and rose 4.4% excluding bonuses, flat on the previous month after a revision up from 4.1%.Economists had expected the unemployment rate to remain at 5%, and for wage growth to ease to 4%.Annual average regular earnings growth was 5.1% for the public sector, and 2.9% for the private sector.The Bank’s governor, Andrew Bailey, has cited strong public sector pay as a concern for its monetary policy committee, which is expected to hold rates at 3.75% later on Thursday.Analysts said the central bank would be concerned that a downward trend in wages had stalled, which could increase spending in the economy more than expected and prevent inflation falling back to the MPC’s target of 2%.The ONS said on Wednesday that the consumer prices index remained steady at 2.8% in May.Ashley Webb, an economist at the consultancy Capital Economics, said: “Today’s data release increases the chances of one or two “insurance” hikes later this year.”But he said the rises were unlikely while the economy remained weak.“The big picture is that the labour market is still very weak, and likely to weaken further,” he added.James Smith an economist at ING, discounted the effect of higher wages in the public sector, which have been affected by delayed pay deals, saying the focus would be on the private sector where wages and employment continued to fall, especially in the retail and hospitality sector“While the Bank of England can’t totally ignore [the public sector], it remains much more focused on the private sector. And here pay growth is still easing off.“The annual rate is now below 3%, a sizeable drop from 5.2% a year ago. The three-month annualised rate is even lower and suggests that the annual rate has further to fall in the near-term.Employers were less likely to take on permanent full-time staff than they were earlier in the year in response to the war in the Middle East, which has shaken business and consumer confidence.PAYE payroll employment rose by 2,000 in May, but this only partly offset a chunky 53,000 fall in April.Fears have grown in recent months that employers will lay off staff to cope with rising costs from the war in Iran.Recent surveys have shown that employers were turning their back on hiring permanent and making redundancies on a larger scale, as the Iran war created uncertainty over the economic outlook.A fall in oil prices in recent days, linked to hopes for a peace deal between the US and Iran, could feed through into lower energy bills for businesses, easing cost pressures on them.The ONS figures also showed vacancies slumped to their lowest level in more than five years as companies continued to rein in their hiring, falling by 19,000 to 707,000 in the three months to May, which was the lowest since the three months to April 2021.The work and pensions secretary, Pat McFadden, said: “This month’s figures show that there are 400,000 more people in work than this time last year, but we know ongoing instability in the Middle East is causing uncertainty in our labour market.“We have the right economic plan for growth and stability in a volatile world – and we are taking action to create opportunity and make sure that no one is left behind.”Louise Murphy, a senior economist at the Resolution Foundation, said: “The UK labour market is weaker than it has been in recent years. This weakness is showing up through rising irregular work in the form of self-employment and zero-hours contracts, higher youth unemployment and lower wage growth. “The real wages of private sector workers have now been falling since last October. With further inflation rises expected over the coming months, these workers should brace themselves for this squeeze to continue over the summer.”