The UK unemployment rate unexpectedly fell to 4.2% between April and June, down from 4.4% in the previous quarter, according to figures from the Office for National Statistics (ONS).
Additionally, both employment rate and real wage growth rose modestly in this period, to 74.5% and 1.6% respectively, indicating an improved standard of living and greater spending opportunities.
Neil Birrell, chief investment officer at Premier Miton Investors, said the labour market was “stronger than expected” with wage growth “pretty much in line” with expectations.
Danni Hewson, head of financial analysis at AJ Bell, added: “The headline unemployment rate might have come in significantly below expectations but there are still important indicators that the UK labour market is cooling.”
Indeed, both the unemployment rates and job vacancies remain higher than pre-pandemic levels and nominal wage growth has slowed, ending at just 5.4% for the period, the smallest increase since July 2022.
She said, “Even if unemployment is down, the employment rate is lower than it was a year ago and there’s still the thorny issue of economic inactivity, which has remained stubbornly stuck at 22.2%.”
While there are questions about whether these surprising statistics will cause the Bank of England to cut rates more aggressively, Hewson believed this was unlikely due to limited consumer confidence, pointing to things like rising grocery prices and the recent riots as reasons people may be spending less.
“Looking at updates from London listed recruiters, businesses are still cautious,” Hewson concluded.
Birrell, added that, although the UK economy is performing well, which will be a boost to the new government, “there probably isn’t enough in these numbers to change Bank of England policy for now”.