Employment slightly rose, while inactivity climbed in the latest quarterly data
Britain’s labour market was broadly stable in the three months to February, before the war involving Iran added fresh uncertainty to the outlook for inflation, interest rates and household finances.
According to the latest figures from the Office for National Statistics, regular pay, excluding bonuses, rose 3.6% year on year, easing from 3.8% in the previous three-month period. A Reuters poll of economists had mostly pointed to wage growth of 3.5%.
The unemployment rate fell unexpectedly to 4.9% from 5.2%, against forecasts for no change. The decline did not reflect a sharp lift in recruitment. Instead, the ONS reported a 169,000 rise in the number of people classed as inactive — out of work and not looking for a job — while employment increased by 24,000.
Students accounted for more than three-quarters of the shift into inactivity among 16 to 64-year-olds, the data showed, complicating the signal from the lower jobless rate.
We’ve published the latest labour market figures.
— Office for National Statistics (ONS) (@ONS) April 21, 2026
Commenting on today’s figures, ONS Director of Economic Statistics Liz McKeown said ⬇️
Read the latest Labour market overview ➡️ https://t.co/uAz49xQQ5J pic.twitter.com/pST5jskEhT
“The latest snapshot of the UK labour market paints a picture of an economy that had been showing signs of more resilience just before the Iran crisis cast a long shadow over the outlook,” said Susannah Streeter (pictured right), chief investment strategist at non-advisory investment service Wealth Club. “Employers were taking on more full-time workers, pushing the unemployment rate down to 4.9%, a sign that demand for labour had been holding up better than expected.
“There were tentative signs that confidence had been stabilising, as the cloud of uncertainty around the Budget and potential tax rises began to lift. Pay growth came in slightly stronger than anticipated, with average weekly earnings, including bonuses, rising 3.8% year-on-year. Although that marks a slowdown from the previous 4.1%, it still indicates that wage pressures haven’t faded away entirely. Taken together with better-than-expected growth of 0.5% in the three months to February, the data suggests the UK economy had been regaining some momentum.
“However, that progress now looks increasingly fragile. Just as companies appeared to be rediscovering their mojo, the escalation in the Middle East and the renewed threat to energy supplies risk sapping confidence once again. So, more hiring plans may be shelved and investment suspended as bosses turn ultra-cautious about the unfolding events.”
The mortgage industry is watching the labour market data closely because the Bank of England is using wage growth as a key test of domestically driven inflation. Investors are also weighing whether higher energy prices linked to the conflict involving Iran could push inflation higher and alter the expected path of interest rates.
Policymakers differ on how much a softer labour market might restrain inflation expectations. Andrew Bailey, the Bank’s governor, has said the central bank should keep a clear eye on risks to growth and jobs as well as inflation when deciding on rates. Huw Pill, the Bank’s chief economist, has stressed that controlling inflation is the Bank’s primary objective and has criticised colleagues’ “wait-and-see” approach.
Still, Streeter said the easing in wage growth had been keeping hopes of interest rate cuts alive, with pay pressures no longer ringing alarm bells at the Bank of England. She, however, noted that the surge in energy prices and heightened geopolitical uncertainty are raising the prospect that borrowing costs may need to be increased to calm an incoming inflation storm.
“One interest rate hike is still being priced in by financial markets, and Bank officials are staying wary about how fresh price pressures will emerge,” Streeter said. “The concern now is that just as the UK economy was beginning to steady itself, a fresh external shock could knock it off course.
“For now, a ‘wait-and-see’ mood is swirling, with the FTSE 100 flat in early trade while Brent crude is in a holding pattern, trading around $95 a barrel.”
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