Wage growth at lowest since Nov 2020; UK unemployment falls to 4.9%

UK labour market data released in April show a softer picture for wages alongside a surprise fall in unemployment. The Office for National Statistics (ONS) reported annual regular earnings growth of 3.6% for December 2025–February 2026, while the unemployment rate fell to 4.9%, signalling a mixed outlook for households and policymakers.

The bulletin also records an employment rate of 75.0% for those aged 16–64 and an economic inactivity rate of 21.0% in the same period, with vacancies estimated at around 711,000—down from recent peaks. Government statements quoted Work and Pensions Secretary Pat McFadden noting unemployment had moved below 5% and that 332,000 more people were in work compared with a year earlier; officials flagged targeted support, including energy bill relief for manufacturers.

Media coverage highlighted that three‑month measures of regular pay had slowed earlier in the year—reports noted a 3.8% reading for the three months to January described as the weakest since November 2020—while ONS’s latest three‑month figure was 3.6%, underscoring the recent softening in wage momentum. Real wage growth remains modest once inflation is taken into account.

The juxtaposition of weaker wage growth and falling unemployment complicates the Bank of England’s policy outlook. Lower pay growth would normally ease inflationary pressure, but higher global energy costs and geopolitical risks stemming from the Middle East add upside risks to CPI, making near‑term rate cut decisions less straightforward for policymakers. Market participants will watch incoming CPI and wage series closely for signs of a sustained trend.

Economists note significant sectoral variation—public‑sector pay rises and timing effects can distort headline averages while private‑sector pay remains weaker—and advise caution because recent LFS improvements and methodological changes have affected volatility in quarter‑on‑quarter comparisons. Most forecasters say further data points are needed before concluding whether wage growth will reaccelerate or the softening will continue, and many expect the labour market to remain a key determinant of UK monetary policy through 2026.