• UK unemployment rises to 4.2%, highest in six months
• Economically inactive individuals increase marginally, labour market stagnates
• Bank of England may consider interest rate reduction this summer

As the number of unemployed in the United Kingdom increases, the labour market appears to be stagnating, according to new data.

During the period from December to February, the unemployment rate rose to 4.2%, the highest level in six months.

In contrast, the percentage of employed individuals experienced a decline, while the economically inactive, referring to those who are neither employed nor actively seeking employment, experienced a marginal increase.

The data, according to economists, may prompt the Bank of England to reduce interest rates this summer.

Paul Dales, chief UK economist at Capital Economics, opined that wage growth would likely continue to decelerate in the coming months due to the precipitous decline in employment and the rise in the unemployment rate.

The Bank may be able to reduce interest rates in June as a result.

Yael Selfin, chief economist at KPMG UK, further stated, “The Bank remains on track to reduce interest rates in the summer due to weakening labour market pressure.

According to the Office for National Statistics (ONS), “initial indications suggest that the labour market may be cooling down.”

Other data, however, indicated that although average wage growth excluding incentives decreased from 6.1% to 6%, it remained significantly higher than anticipated.

The Bank of England closely monitors wage growth in order to determine whether or not to reduce interest rates, as it has the potential to stimulate inflation, which quantifies the rate of increase in prices.

A decline in the rate of inflation has been observed. It slowed from a record high of 11.1% in October 2022 to 3.4% in the year leading up to February 2022, and new data that is anticipated to be released on Wednesday will indicate a further deceleration for the year ending in March 2022.

However, the Bank of England aims to maintain inflation at 2%, and there is a possibility that it could rise further if earnings continue to increase.

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This snapshot does little to allay the concerns of policymakers that persistently high wages could cause headline inflation to rise again, even though it is on track to reach its target within the next few months,” said Susannah Streeter, head of money and markets at investment firm Hargreaves Lansdown.

The ONS reported that the unemployment rate in the United Kingdom increased from 3.9% to 4% in the three months leading up to January, exceeding the 4% increase predicted by economists.

Between December and February, the employment rate decreased to 74.5%, while the proportion of individuals aged 16 to 64 who are considered economically inactive increased from 21.8% to 22.2%, or 9.4 million individuals.

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