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Worklessness a ‘threat to growth’ after hitting 13-year high

The ONS figures present a headache for Bank of England Governor Andrew Bailey
The ONS figures present a headache for Bank of England Governor Andrew Bailey - Chris Ratcliffe/Bloomberg

Worklessness is now a ‘threat to growth’, economists have warned, after official data showed economic inactivity surged to a fresh 13-year high.

The number of adults neither in a job nor looking for one rose to more than 9.4 million in the three months to April, according to the Office for National Statistics (ONS), the highest since 2011, in the aftermath of the financial crisis.

Of those classed as inactive, 2.83 million blamed long-term sickness – a record high.

Employment dropped by 139,000 in the three months to April, with unemployment rising by almost the same amount. More than 1.5 million people are now unemployed, the highest number since 2021.

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Tony Wilson, director of the Institute for Employment Studies, said the growing share of 16 to 64-year-olds not engaging in the labour force was becoming a serious threat to the economy.

He said: “When employment stops growing, so does the economy. This parliament has seen the largest rise in economic inactivity and largest contraction in the size of the workforce since comparable records began in 1971.

“And this just isn’t happening in other countries, with the UK virtually the only developed economy where the employment rate has fallen since the pandemic.”

Alexandra Hall-Chen at the Institute of Directors said almost half of businesses are struggling to get the staff they need, in part because so many people have dropped out of the jobs market.

She said: “The further rise in economic inactivity over both the quarter and the year threatens to compound these challenges for business.

“Stabilising rising costs and bringing people back into the workplace needs to be a focus for the next government. Without action to increase domestic labour supply, strong economic growth will be all but impossible.”

The ONS data also showed wage growth came in faster than expected last quarter, dealing a blow to hopes that the Bank of England will be able to start cutting interest rates this summer.

The latest figures show average regular earnings rose by 6pc in the past year, driven in part by the near-10pc jump in the minimum wage.

Economists said the wage pressure reinforced the view that the Bank of England would wait until after the election before cutting interest rates from their current 16-year high of 5.25pc.

The Bank’s Monetary Policy Committee, led by Andrew Bailey, meets next week to decide on whether to reduce borrowing costs.

Jake Finney, an economist at PwC UK, said the latest ONS labour market data “presents a headache for the Bank of England”, while Simon French, of Panmure Gordon, said wage growth remains “too hot” to reduce borrowing costs.

Thomas Pugh, economist at RSM, added: “Strong pay growth will give the hawks on the committee some ammunition and the combination of sticky inflation and the election means there is almost no chance of a rate cut next week.

“In our opinion an August rate cut is the right move.”

Liz Kendall, Labour’s shadow work and pensions secretary, accused the Conservatives on Tuesday of an “abject failure” to address the worklessness crisis.

Ms Kendall said: “On Rishi Sunak’s watch, a record number of people are out of work due to long-term sickness at terrible cost to them, to business and the taxpayer, and we remain the only G7 country whose employment rate still isn’t back to pre-pandemic levels.”

The Conservative manifesto, launched on Tuesday, said the party wished to “tighten up how the benefits system assesses capability for work.”

“We will change the assessments from September 2025 so that those with more moderate mental health issues or mobility problems who could potentially engage with the world of work are given tailored support, instead of being written off on benefits,” it said.