Rachel Reeves must pay attention to rising unemployment figures – her job may depend on it

If Keir Starmer was still on a high after securing two trade deals last week, with the USA and India, he has surely come back to Earth with a thump – thanks to a jump in unemployment and another sharp decline in job openings.

The official rate of joblessness is near a four-year high, having increased to 4.5 per cent from 4.3 per cent over the three months to March, with 1.6 million people perusing jobs boards – a rise of 62,000 when compared with the previous set of numbers. The Office for National Statistics (ONS) said early estimates for April 2025 also showed a fall of 33,000 people on payrolls against March. There were 106,000 fewer employees in paid employment than there were in April 2024.

Those in the uncomfortable position of finding themselves out of work and looking for a job are finding that life is getting tougher. The number of vacancies over the three months to the end of April came in at 761,000, a fall of 42,000. The worst performer was construction. So much for “getting Britain building again”.

Liz McKeown, director of economic statistics at the ONS, highlighted that the rate of decline has been “increasing in the last few months”. Against this backdrop, the Bank of England’s decision to cut interest rates was timely. But the figures came with a sting in the tail for the rate-setters on the Monetary Policy Committee (MPC): wage growth remained strong.

In April, the rise in average weekly earnings was 5.6 per cent – a decline from the 5.9 per cent recorded in March, but still much higher than the majority on the MPC will be comfortable with. The committee is divided on how to proceed. While the majority voted for a 0.25 per cent cut, the decision was described as finely balanced. Two external members called for a bigger, 0.5 per cent move. But the other pair of dissenters wanted to hold rates.

I think the MPC could – and should – go further. But I don’t have a vote, and for a sizeable chunk of the committee, wages are growing at perhaps twice the level they would be comfortable with, their eyes on the 2 per cent inflation target.

After successive cost of living crises, the British worker would surely push back against that – ditto their unions. In their view, the chunky pay rises awarded to workers are necessary and have been earned. It is not as if Britain’s bosses are going hungry; there have already been a number of investor rebellions over CEO pay this year.

But the Bank’s principal mandate is to control inflation. That 2 per cent target applies above all. It has repeatedly voiced concerns about the inflationary effect of the current high level of pay growth.

It is also true that, if you combine high pay growth with higher taxes on employment when there is little in the way of growth to ease the pain, well, something has to give. That “something” is jobs – and the problem is particularly acute at the lower end of the wage scale.

The minimum wage has been rising fast, a policy of both the previous Tory government and the current Labour administration. There is a lot to be said for making work pay. However, the way chancellor Rachel Reeves increased taxes on jobs – by hiking both employer national insurance contributions (NICs) and lowering the level at which they kick in – makes life very hard for employers with large numbers of relatively low-waged workers, whom they are having to pay more.

The idea that a statutory minimum wage would destroy jobs has been debunked and the UK’s is not yet a true living wage, as defined by the Living Wage Campaign, either. But if you factor in the NICs increase, we are now getting to the point at which the debate over how far you can go before you start to reduce employment is live. As a previous supporter of a higher minimum, I don’t find this comfortable to write. But it doesn’t help anyone to avoid the issue if the end result is people losing their jobs.

Their number looks set to grow, and even though unemployment is still relatively low by historic standards, that doesn’t offer much comfort to those at the sharp end.

Moreover, when people start to worry about their jobs, they stop spending. They hear the wolf at the door and they act accordingly, to the economy’s detriment. They also start casting around for people to blame for their unhappy situation. If the government is worried about its poll ratings now, what happens if the rise in the unemployment rate accelerates?

Relief may yet come in the second half of the year, when most forecasters expect the economy to pick up, partly as a result of the government’s welcome decision to increase investment spending. But there is an awful lot riding on that – and if the expected economic boost does not materialise, then the government has a big problem on its hands.

The chancellor needs to pay very close attention to the job market’s woes. As do her colleagues.