Wage growth hits lowest level since November 2020; Rachel Reeves will not take ‘knee jerk’ action on Iran war – as it happened
Unemployment in the UK fell to 4.9% in February, the lowest since last summer, even as wage growth slowed to 3.6% year‑on‑year – the lowest since November 2020. The slowdown comes amid rising inflation and concerns over Middle East conflict, prompting government and industry calls for targeted acti…
In February, the Office for National Statistics reported a 4.9% unemployment rate, the lowest level in the UK since last summer. The figure fell from 5.2% in the three months to January, a decline that surprised economists who had expected a steady rate.
At the same time, wage growth slipped to 3.6% year‑on‑year in the three months to February, down from 3.8% in January. This marks the slowest pace since November 2020. When inflation is factored in, real wages increased by just 0.2%, signalling a tightening labour market that could pressure consumer spending.
Middle East conflict fuels inflation fears
Industry groups, including the Food and Drink Federation (FDF), warn that the ongoing conflict in the Middle East could push food price inflation higher. The FDF predicts a 9% rise by year‑end, a sharp jump from the 3.2% forecast before the conflict. Energy costs, especially those linked to the Strait of Hormuz, are cited as a key driver of higher food prices.
Chief executive Karen Betts urged the government to act swiftly, arguing that delayed intervention would allow inflation to embed itself in the economy. She highlighted the need for targeted support for manufacturers and a pause on new regulations that could further strain the sector.
Government response and economic strategy
Chancellor Rachel Reeves told MPs that she would avoid “knee‑jerk” measures that could raise consumer costs. Reeves emphasised a targeted approach to protect households and businesses, noting the impact of past fiscal policies on interest rates and inflation. She also confirmed the Energy Secretary’s plan to increase the Energy Generator Levy, targeting older renewable projects.
The government is also pushing ahead with plans to decouple electricity and gas prices, aiming to shield consumers from wholesale market volatility. The Confederation of British Industry’s chief executive, Rain Newton‑Smith, called for clear timelines to reduce uncertainty for businesses.
Corporate moves amid economic uncertainty
Associated British Foods (ABF) confirmed its plan to demerge Primark from its food division, creating two FTSE 100 companies. The fashion chain, which operates 486 stores across 19 countries, is valued at up to £9bn, while the food business could be worth £4bn. The split is expected to improve focus and profitability for both entities.
Financial technology firm Revolut is eyeing a $200bn valuation for its upcoming IPO, with founders Nik Storonsky and investor discussions pointing to a target between $150bn and $200bn. The company plans to launch the IPO no earlier than 2028.
Postal service reforms and industry challenges
Royal Mail announced a £500m investment to overhaul its delivery system, including scrapping second‑class post on Saturdays and introducing a new letter delivery model. The changes aim to improve first‑class delivery rates to 85% within nine months and hit the 90% target set by Ofcom within a year.
Despite the investment, Royal Mail faces criticism for past performance and a record £21m fine from Ofcom for missing delivery targets. The company’s new plan has been met with cautious optimism from the Communication Workers Union, which stresses the need for realistic workforce support and accountability.
Market reactions and outlook
Financial markets responded with modest gains: the S&P 500 rose 0.1% and the Dow Jones up 0.6% in early trading. The UK’s FTSE 100 fell 0.4%, with Rolls‑Royce shares dropping 5.5%. Energy and AI sectors are attracting investor interest, with Amazon announcing a $25bn investment in AI firm Anthropic.
Fuel prices remain high, with unleaded at 157.57p per litre and diesel at 190.13p, while fuel theft incidents have surged by 62% year‑on‑year. These developments underscore the broader economic pressures facing households and businesses alike.
Overall, the UK economy is navigating a complex mix of low unemployment, sluggish wage growth, rising inflation, and geopolitical uncertainty. Policymakers and industry leaders are calling for targeted, timely interventions to safeguard consumer spending and maintain economic stability.
Why it matters
The article highlights how a falling unemployment rate can coexist with slowing wage growth and rising inflation, underscoring the delicate balance policymakers must maintain to protect consumers and businesses amid geopolitical tensions.
Key points
- UK unemployment fell to 4.9% in February, lowest since last summer
- Wage growth slowed to 3.6% year‑on‑year, lowest since November 2020
- Food and drink industry fears a 9% inflation rise due to Middle East conflict
- Chancellor Rachel Reeves will avoid knee‑jerk measures, favouring targeted action
- Associated British Foods plans to demerge Primark, creating two FTSE 100 companies
- Royal Mail invests £500m to overhaul delivery and improve performance
Frequently asked questions
What caused the drop in UK unemployment in February?
The Office for National Statistics reported a 4.9% unemployment rate, lower than expected due to a combination of economic activity and labour market dynamics.
Why is wage growth slowing?
Wage growth slowed to 3.6% year‑on‑year as inflation pressures rise and employers become more cautious amid geopolitical uncertainty.
What is the government doing about food inflation?
The government is considering targeted interventions, pausing new regulations, and increasing the Energy Generator Levy to mitigate energy costs that feed into food prices.
What changes are planned for Royal Mail?
Royal Mail will scrap second‑class post on Saturdays, introduce a new letter delivery model, and invest £500m to improve first‑class delivery rates.
