The Office for National Statistics reported that the UK unemployment rate declined to 4.9% in the three months ending in February, down from 5.2% in the previous three months. During the same period, average wages increased by 3.6%, slightly lower than the 3.8% growth in January, with bonuses contributing to a 3.8% rise. These results exceeded expectations.

These figures do not fully reflect the impact of the recent Middle East conflict, which experts warn may lead to higher inflation and potential job losses as businesses facing increased expenses may cut back on hiring. Wage growth in the public sector averaged 5.2%, while the private sector saw a growth of 3.2%.

Job vacancies decreased in the latest quarter, dropping by 29,000 to 711,000, the lowest level since early 2021. The number of workers on payroll remained relatively stable, indicating subdued hiring activity. While unemployment decreased, the number of individuals not actively seeking work increased.

Yael Selfin, chief economist at KPMG UK, noted that wage growth was slowing before the conflict and the risk of higher energy costs affecting pay pressures was reduced. However, uncertainties in the labor market could impact the Bank of England’s decisions on interest rates.

Luke Bartholomew, deputy chief economist at Aberdeen, mentioned that the drop in unemployment might not have a significant market impact as it mainly reflects rising inactivity rather than robust hiring. With payrolls data showing weakness and expected inflation rises, households may face a period of negative real wage growth, affecting overall economic growth.

The data precedes the release of crucial inflation data by the ONS, which will shed light on the early effects of the Middle East conflict in March.