UK economy: Surprise fall in unemployment rate to 4.9%

The UK's unemployment rate has taken a surprise fall, according to official figures, released amid warnings of a spike in job losses to come.

The Office for National Statistics (ONS) reported that the rate fell to 4.9% during the three months to February.

That was down from a previous level of 5.2%.

But the ONS said that early data from HM Revenue & Customs, covering workers in payrolled employment, showed a drop of 11,000 during March - the first month of the US-Iran war that saw global energy prices rise sharply.

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The wider figures showed average annual earnings growth, excluding bonuses, fell to 3.6% from 3.8%.

ONS director of economic statistics, Liz McKeown, said: "The number of workers on payroll remained broadly flat in recent periods, reflecting ongoing weak hiring.

"Vacancies fell to their lowest level in almost five years, but with unemployment also falling the number of vacancies per unemployed person remains broadly unchanged.

"Alongside falling unemployment, the number of people not actively seeking work increased, with data suggesting fewer students seeking work alongside their studies.

"Regular wage growth has slowed further, with growth at its lowest rate in over five years."

Recent forecasts have suggested the UK economy faces the biggest hit among developed nations due to the fossil fuel price crisis caused by the conflict in the Middle East.

The most recent study of the threat, by the respected Item Club, saw the UK's jobless rate hitting 5.8% in just over a year's time, affecting almost 250,000 people.

The higher oil and gas costs were tipped to push UK inflation to a peak of 4% this year - up from the current 3% level - with economic growth halving during 2026 to 0.7%. The report warned the economy would "flirt" with recession.

The ONS report will raise fears that the rate of inflation will soon outstrip the pace of wage rises, harming consumer spending power.

Private sector employers have long blamed surging costs, including higher national insurance contributions and minimum wage levels, for cutting staff.

The unemployment rate stood at 4.1% when Labour took office.

The government has signalled targeted, rather than universal, help ahead as the energy shock builds, though the prospects for immediate aid appear slim.

Chancellor Rachel Reeves is expected to use a statement to MPs later to claim her stewardship of the economy will help "to build a Britain that is prepared for what comes next".

She will rule out financial support that puts further upwards pressure on inflation and instead look to invest in boosting defence and energy security.

Work and Pensions Secretary, Pat McFadden, said of the ONS data: "These figures show that there was an improvement in the labour market at the beginning of the year with unemployment falling below 5%, and 332,000 more people in work than a year ago.

"But we cannot escape the effects of the war in the Middle East which are likely to feed through to prices and employment in the coming months. We will do everything we can to support the country through this period, including by slashing energy bills by up to 25% for 10,000 manufacturers.

"And we're focusing on future proofing and upskilling our workforce through our £2.5bn investment to get more young people earning and learning alongside personalised support to help sick or disabled people who had previously been written off."

(c) Sky News 2026: UK economy: Surprise fall in unemployment rate to 4.9%