Official data from the Office for National Statistics shows UK job vacancies fell by 19,000 between March and May, increasing pressure on those seeking work.
The unemployment rate dropped to 4.9 per cent, down from five per cent in the previous month’s data, coming in lower than markets had predicted.
Despite the marginal improvement in unemployment, fresh figures reflect growing challenges across the UK economy as firms grapple with rising labour costs and a heavy tax burden.
Wage growth excluding bonuses came in at 3.4 per cent, higher than expected, while wage growth including bonuses reached 4.4 per cent, also beating forecasts.
Liz McKeown, director of economic statistics at the ONS, said: “Payroll numbers continued to fall over this period, with new recruits at their lowest level in five years.”
McKeown added: “Overall employment was little changed, with some signs of workers moving into self-employment.”
Work and pensions secretary Pat McFadden acknowledged the figures, saying: “This month’s figures show that there are 400,000 more people in work than this time last year, but we know ongoing instability in the Middle East is causing uncertainty in our labour market.”
McFadden added: “We have the right economic plan for growth and stability in a volatile world and we are taking action to create opportunity and make sure that no one is left behind.”
Shadow work and pensions secretary Helen Whately struck a more critical tone, warning that rising economic inactivity suggested “people aren’t even try to get work anymore.”
Whately said: “That means more people on benefits and a higher welfare bill, at the taxpayers expense.”
Shadow business secretary Andrew Griffith has warned that rising business costs of as much as nine per cent threaten to bring either higher prices to the high street, more firms closing with the loss of jobs, or both.
Separate ONS data released on Tuesday showed inflation remained flat at 2.8 per cent, well below the Bank of England’s own prediction of 3.3 per cent made a month earlier.
Services inflation, which Bank of England rate-setters closely monitor for signs of wage pressure, jumped from 3.2 per cent to 3.7 per cent, complicating the outlook further.
Core inflation, stripping out volatile energy and food costs, stood at 2.6 per cent, while energy price concerns linked to the Iran conflict continue to weigh on households.
The future of the UK economy depends significantly on whether the Strait of Hormuz fully reopens following the peace deal between the US and Iran.
The Bank’s Monetary Policy Committee faces a difficult balancing act between responding to a weakened labour market and managing elevated inflation expectations that could push prices well above the two per cent target.
Some economists have suggested the Bank will hold monetary policy unchanged for the rest of the year before cutting interest rates in 2027, with weakened demand potentially preventing prices from spiralling further.