UNEMPLOYMENT in the UK could soon hit the highest level seen since the Covid pandemic, according to a think tank.
The joblessness rate is due to hit 5% in the three months to August, according to research from the Resolution Foundation.
This would be the highest level seen since the start of 2021, when the UK was in the midst of Covid lockdowns.
It suggests that while the official unemployment rate is currently broadly accurate, other indicators, including employment and inactivity, are still giving misleading signals.
The official rate was 4.7% for the second quarter of the financial year. Gregory Thwaites, research director at the Resolution Foundation, said: "Unemployment has not yet peaked.
“The ongoing loosening of the labour market appears to be taking the form of a hiring freeze rather than a firing spree, but this is still bad news for jobseekers as vacancies look set to continue being scarce.”
Hiring has slowed in the UK, with many businesses blaming Chancellor Rachel Reeves’ decision to increase employer National Insurance contributions alongside a rise in the national living wage. A rate of 5% would be the highest since the three months to February 2021 and would be above the Bank of England’s prediction of 4.9% unemployment in the final quarter of this year.
Unemployment last peaked at 5.3% in late 2020 before beginning to decrease throughout the following year.
The analysis indicates the employment rate is falling, contradicting Office for National Statistics data that shows it is up over the past year, with a range of indicators suggesting the jobs market is now looser overall than it was on the eve of the pandemic.
Vacancies had fallen most in lower-paying industries such as retail and wholesale and hospitality over the past year. However, the picture is being clouded by continued strength of wage growth, which the Resolution Foundation said was a “puzzle” given the weakening jobs market. Recent pay growth of 5% is about a percentage point more rapid than the Resolution Foundation models would suggest.
Labour market inactivity stands at about 21%, according to the Resolution Foundation estimates, in line with official readings.
However, this had risen by about 1% over the past two years, in contrast to official figures a 1% decrease from its peak, the think tank said.
"While our analysis confirms that official measures of unemployment are accurate, it worryingly indicates that economic inactivity has been on an upward trajectory,” said Thwaites.
Last month it was confirmed unemployment in Scotland has fallen slightly between March and May this year while the UK rate rose overall.
Data from the ONS showed that the unemployment rate for people aged 16 and over in Scotland was 3.7% in that period. This was 0.5% down on the previous quarter and below the UK-wide rate of 4.7%.
