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Record rise in long-term illness pushes UK unemployment rate to 3.9%

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Unemployment is creeping up as the number of people not working due to long-term sickness rose to a new record and vacancies continued to decline in an early sign that the labour market is cooling, official figures show.

The jobless rate rose by 0.2 percentage points to reach 3.9 per cent, from a low of 3.7 per cent, in the first three months of the year as the share of workers who have been out of a job for over a year increased, according to the Office for National Statistics.

Meanwhile, vacancies fell for a tenth consecutive quarter to just over one million as companies hold back on recruitment amid uncertainty about the wider economy.

The employment rate rose as more workers entered part-time work or self-employment. The share of the working age population in employment rose to 75.9 per cent, but remains below pre-pandemic levels.

However, the more timely measure of payrolled employees showed that April recorded the first decline since February 2021, down by 136,000 to 29.8 million. This figure is likely to be revised when more data is received next month.

The rate of inactivity, which gives the share of working age people who are neither in a job nor looking for one, fell by 0.4 percentage points between January and March as more students left study to enter work. However, the rate remains elevated and the share of people aged 16 to 64 who are not part of the workforce is still higher than it was before the pandemic.

Hundreds of thousands of workers, particularly those aged over 50, left their jobs over the course of the pandemic either for early retirement, entering study, or long term sickness. The number of workers who were out of work because of long term illness reached another record high in the first quarter of the year.

However, the net flow of people out of inactivity into employment also hit a record high in the three months to March compared to the previous quarter.

Darren Morgan, the ONS’ director of economic statistics, said: “Employment and unemployment both rose again in the first three months of 2023, driven in particular by men. This means the number of those neither working nor looking for work continues to fall, although the number of people not working due to long-term sickness rose again, to a new record.

“Despite continued growth in pay, people’s average earnings are still being outstripped by rising prices”

Pay growth in the public sector, excluding bonuses, reached its highest level since 2003 at 5.6 per cent in the first quarter, however it lagged behind private sector pay growth at 7 per cent. In real terms, which strips out double-digit inflation, pay fell by 2 per cent.

There were 556,000 working days lost to industrial action in March, up from 332,000 in February.

Kitty Ussher, chief economist at the Institute of Directors, said: “A combination of high costs and cash-strapped consumers is now causing some businesses to hesitate before hiring, uncertain as to what the future holds. As a result, the number of employees has fallen for the first time in over two years, and the unemployment rate is starting to rise from its post-pandemic low.

“But there is also evidence of a skills mismatch, with other organisations finding it hard to recruit the talent they need even as unemployment goes up — there are still 282,000 more vacancies in the UK than before the pandemic.”

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