Britain’s unemployment rate has unexpectedly risen as vacancies slumped to their lowest level for five years amid a sharp pull back in hiring across the under-pressure retail and hospitality sectors, according to new official figures.
The Office for National Statistics (ONS) said the jobless rate rose to 5% in the three months to March, up from 4.9% in the three months to February. Most economists had expected the rate to remain unchanged.
The ONS estimated the number of workers on UK payrolls also fell by 100,000 during April – the largest drop since May 2020 at the start of the Covid pandemic – although the figures are subject to revision.
Vacancies dropped by 28,000 quarter-on-quarter to 705,000 in the three months to April, marking the lowest level since the same period in 2021.
Regular earnings growth also eased further to 3.4% in the first quarter, down from 3.6% in the three months to February, only just outpacing Consumer Prices Index inflation by 0.3%.
Liz McKeown, ONS director of economic statistics, said: “Latest figures suggest the labour market remains soft, with vacancies at their lowest level in five years and unemployment higher than a year ago.”
She added: “Lower-paying sectors such as hospitality and retail have seen some of the largest falls in vacancies and payroll numbers, both in recent months and over the last year.”
Reacting to the latest labour market figures, Patrick Milnes, head of policy for people and work at the British Chambers of Commerce, warned that business confidence remains fragile.
“With unemployment at 5%, the expectation is that it will rise this year as business uncertainty grows amid the UK’s political unrest and the Iran War. Our latest forecast expects it to increase to 5.5%,” he said.
“A further drop in vacancies, now at their lowest outside the pandemic for more than a decade, suggests businesses are pausing recruitment. This is unsurprising as labour costs remain a key concern.
“But with the conflict in Iran likely to drive higher inflation later in the year, as unemployment also rises and growth remains weak, the possibility of stagflation is very real.
“To counter this the government must set out a pro-growth agenda which capitalises on the UK’s economic strengths. While AI could boost productivity, its impact on young people entering the job market is a worry, given the further rise in the number of economically inactive people aged 18-24.
“Firms are also alarmed over plans to remove the lower National Minimum Wage level for 18-21 year olds. This could deter them from employing young adults and place upward pressure on all wage scales.
“Further action to ease the cost burdens firms face is needed, such as changes to electricity bill levies and reform of business rates. These would also go a long way to boosting confidence.”
Separate research published by the Institute for Fiscal Studies (IFS) on Tuesday suggested the current fall in youth employment rates is approaching the scale of decline seen during the 2008 financial crisis and the Covid-19 pandemic.
The IFS data, which relates to a different time period to the latest jobs and wages figures, showed the proportion of 16 to 24-year-olds in payrolled work fell from 54.9% to 50.6% between December 2022 and December 2025.
Jed Michael, a research economist at the IFS, said the trend was concerning because “we know that unemployment early in one’s career can have lasting negative consequences”.