Today’s ONS labour market figures are a cause for concern as unemployment remains elevated at 5.2% while wage growth cooled significantly to a five-year low of 3.8%. These figures suggest that many UK households may struggle to weather the coming storm of economic uncertainty and rising energy bills due to the crisis in the Middle East. This could put the Government’s target of ensuring people feel better off this year in serious jeopardy.

Jobseekers struggle to find work

Unemployment is at 5.2% in the latest data, up from 4.4% a year ago. There are now 323,000 more people unemployed relative to last year. This increase in unemployment is partly due to a fall in economic inactivity to 20.7%, as people start to look for work again but struggle to find a job. There are now three unemployed people per vacancy, the highest level since Oct-Dec 2020 during the pandemic.

Young people continue to bear the brunt of a sluggish labour market with youth employment creeping up to a ten-year high of 14.5%. Over one in three (38.4%) unemployed young people have been out of work for more than six months and are likely to be eligible for the Government’s Youth Jobs Grant. It is more vital than ever that the scheme prioritises creating high quality secure work that enables young people to progress in their careers and avoid the scarring effects of long-term unemployment.

Wage growth slows to four-year low

Workers are also feeling the impact of the continued cooling of the labour market. Wage growth has slowed significantly to 3.8% which is the slowest rate of growth since November 2020 and breaks a historic 48-month streak of above 4% growth. With inflation still above the Bank of England target, average real wage growth is a paltry 0.4%.

The latest slowdown appears to have been driven by a fall in public sector wage growth from 7.2% to 5.9% as the effect of recent early public sector pay awards peter out. However, the picture in the private sector is subdued too with wage growth slowing to just 3.3%.

These figures suggest that the era of robust wage growth in the aftermath of the pandemic is over. The squeeze in wage growth has come at the wort possible time as another potential cost of living crisis looms. While the energy cap has already been set for April-June 2026, the crisis in the Middle East will likely push up energy bills later this year forcing UK households to absorb another inflation shock. The Bank of England now estimates that inflation could rise to 3.5% later this year.

Inflation has now been above the 2% target for 45 out of the last 48 months while wage growth has largely been stagnant since the Global Financial Crisis of 2008. Workers are on average only £25 better off per week than they were before the financial crisis of 2008. This prolonged wage stagnation, combined with persistently high inflation, have left UK households exposed to global economic volatility – particularly those on low incomes or reliant on insecure work.

Figure 1 Regular Nominal Wage Growth January 2019-January 2026

Source: ONS dataset A01 Table 15: Average Weekly Earnings (nominal) - Regular Pay (Great Britain, seasonally adjusted)

Government must be proactive in supporting households with cost of living

In the Autumn Budget last year, the Government announced a slew of measures to tackle the cost of living including freezing prescription charges and rail fares, as well as taking green levies off energy bills. These steps were designed to bring inflation down and enable the Bank of England to lower interest rates.

However, conflict in the Middle East risks making these measures inadequate to tackle the expected surge in energy bills and costs of essentials later this year. The Government needs to be prepared to use all the levers at its disposable to insulate low-income household across the country from the latest energy shock. For example, it must ensure that the new Crisis and Resilience Fund, due to launch in April 2026, meets the scale of the financial challenges people are like to face. Ministers may also face pressure to act ahead of the Budget this Autumn to clarify whether planned increases in fuel duty will go ahead.

Ultimately, it appears highly likely that without providing additional support this year, the Government’s goal of delivering tangible improvements in living standards will be at serious risk.

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