Unemployment rose 4.4% despite wages also going up – what it means for your finances

THE UK’s rate of unemployment has risen, but wages continue to grow, according to new figures.

The jobless rate rose to 4.4% in the three months to April, the Office for National Statistics has said.

We've explained what it means for your pocket

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We’ve explained what it means for your pocketCredit: Getty

It is the highest rate unemployment has been for nearly a year and up from 4.3% in the three months to February.

The latest figures from the ONS also reveal there were 904,000 vacancies between March and May this year.

That’s a decrease of 6,000 from the previous three months and 156,000 lower than a year before.

However, the ONS’ latest data also reveal wages, excluding bonuses, continued to rise by 6% between February and April, compared to the same time period in 2023.

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GROWING WAGES

Growing income is great news for our pockets at first glance.

However, this could spell bad news for borrowers expecting the Bank of England to cut interest rates next week.

In May, decision-makers on the Bank’s Monetary Policy Committee (MPC) left the base rate at a 16-year high of 5.25%.

At the time, analysts and investors believed that rate cuts had the potential to arrive as early as June.

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However, the current figures now reveal that wage growth is at more than double the 2.3% inflation rate.

And this will not help persuade the Bank of England to cut interest rates when it meets next week.

Wage growth can drive inflation as businesses raise the price of their services and goods to stay profitable.

Why does inflation matter?

INFLATION is a measure of the cost of living. It looks at how much the price of goods, such as food or televisions, and services, such as haircuts or train tickets, has changed over time.

Usually people measure inflation by comparing the cost of things today with how much they cost a year ago. The average increase in prices is known as the inflation rate.

The government sets an inflation target of 2%.

If inflation is too high or it moves around a lot, the Bank of England says it is hard for businesses to set the right prices and for people to plan their spending.

High inflation rates also means people are having to spend more, while savings are likely to be eroded as the cost of goods is more than the interest we’re earning.

Low inflation, on the other hand, means lower prices and a greater likelihood of interest rates on savings beating the inflation rate.

But if inflation is too low some people may put off spending because they expect prices to fall. And if everybody reduced their spending then companies could fail and people might lose their jobs.

See our UK inflation guide and our Is low inflation good? guide for more information.

The ONS said annual average earnings across the public sector rose by 6.4% between February and April compared to the same three months in 2023.

It said the manufacturing sector and the finance and business services sector saw the largest annual regular growth – 6.9%.

The construction sector saw the smallest annual regular growth rate at 2.9%.

The ONS said: “This month’s figures continue to show signs that the labour market may be cooling, with the number of vacancies still falling and unemployment rising, though earnings growth remains relatively strong.”

HIGH UNEMPLOYMENT

Higher unemployment rates are obviously bad, as it means more people are out of work and not earning money.

It also means less money is being pumped into the economy, which can see GDP slow.

When GDP falls, it means the economy is shrinking, and governments have less of the public’s money to spend on public services.

It can also mean taxes rise which means less money in your pocket.

Alice Haines, from BestInvest, added: “Job uncertainty can be very unsettling for workers, particularly those with no backup savings in place.

“The financial implications for those that cannot secure a new job quickly can be severe with the longer they are unemployed raising the prospect of bills remaining unpaid and debts piling up.

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“Building up solid financial reserves that can cover up to six months’ of expenses is important in uncertain times.

“Paying down expensive debts and avoiding unnecessary expenditure will also ease any fears around being able to cover a lengthy period without income.”

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