Mathew Amaechi
Britain’s unemployment rate rose to 4.5 percent in the first quarter of 2025—its highest level since August 2021—according to the Office for National Statistics, as businesses grapple with a new tax burden at home and lingering US tariffs abroad.
While wage growth has eased slightly, it remains historically high, dampening hopes of a swift moderation in inflation. Economists now expect the Bank of England to maintain its current quarterly pace of rate cuts but warn that further labour market softening may lie ahead.
The UK jobless rate climbed to 4.5 percent in the quarter to March, up from 4.4 percent in the three months to February—marking the highest unemployment since summer 2021.)
This uptick reflects a broader cooling in the labour market, with employment numbers contracting for the fourth consecutive quarter.
Tuesday’s figures cover the period before April’s introduction of a 25 percent business tax increase—one of the key measures in the Labour government’s maiden budget on October 30, 2024—which analysts say has weighed on firms’ hiring intentions. The data also precedes the imposition of a universal 10 percent tariff on all imports to the US—announced by President Donald Trump on April 2 (“Liberation Day”) and implemented on April 5—under his expanded emergency trade powers.
Although sector specific levies were delayed until April 9, the baseline tariff applies broadly, adding to the cost pressures for UK exporters. ONS Director of Economic Statistics Liz McKeown noted that while wage growth “slowed slightly in the latest period, it remains relatively strong, with public and private sectors now showing little difference,” and that “the broader picture continues to be of the labour market cooling, with the number of employees on payroll falling in the first quarter of the year.
In the three months to April, the number of employees on payroll fell by 33,000, following a 47,000 drop in March, and job vacancies declined by 42,000—underscoring the drag from higher employer National Insurance contributions and the minimum wage hike. Average weekly earnings excluding bonuses rose by 5.6 percent—the slowest rate of growth since November 2024—yet still comfortably above inflation, which stood at 2.6 percent in March.
Sterling held steady against the dollar following the release, as investors reassessed the outlook for UK interest rates. Analysts at Capital Economics warn that, despite the cooling jobs market, persistent wage growth “suggests the Bank of England is likely to continue cutting rates at the current pace of 25 basis points every quarter.” With the labour market showing further signs of softening—and businesses already adjusting headcounts in response to higher taxes and trade costs—economists now anticipate two more quarter point BoE rate cuts this year, taking the Bank Rate down from 4.25 percent toward 3.75 percent.
However, should wage pressures remain elevated or external shocks persist, the path of monetary easing could be delayed. Meanwhile, unemployment may rise further as firms continue to recalibrate in an increasingly challenging cost environment.
