Wage growth slips back as jobless rate hits highest since 2021 – ONS

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The jobs market is a miserable place to be.

“Unemployment has been trending up for three years and vacancies are well below their pre-pandemic levels, so the number of unemployed people per vacancy rose to 2.4 – up from 2.3 last month.

“It means that finding a job is more of an uphill task with each passing month. For those in work, meanwhile, wages are now rising only a fraction ahead of inflation.

“Losing work has a horrible impact on your financial resilience across the board. The new HL Savings and Resilience Barometer shows that people who are out of work run into real financial difficulties.

“On average, households where the head is unemployed don’t have a single penny left at the end of the month. With average emergency savings pots of just £264, their finances are on a knife edge.

“It’s difficult to tell at this stage how much of this labour market weakness is cyclical, how much is due to the rise in employers’ National Insurance making it more expensive to employ people, and how much is due to a more structural change.

“The rise of AI will be playing a role in these figures. Only time will tell how much of a role, and whether this is part of a fundamental long-term shift in how and when we work.

“It’s not all doom and gloom. At this level, unemployment remains low by historic standards, and the employment rate has actually risen slightly over the past year. The labour market is getting tougher, but we’re a long way from a crisis.

“Wages have continued to rise ahead of inflation, which means working people still have some space in their budgets to deal with rising prices.

“The most recent HL Savings and Resilience Barometer shows that households headed by an employee have an average of £244 left at the end of the month and are saving 6 per cent of their income.

“However, we can’t rely on this forever. Wage rises are slowing, and they’re now only a fraction ahead of inflation. This is likely to continue through the rest of the year, as employers try to counteract the impact of higher employers’ National Insurance by offering smaller pay increases.

“If inflation remains sticky, it won’t be terribly long before wages fall behind price rises.

“Everyone should take the time to revisit what would happen if they were unable to work for a period. It’s why advisers will recommend having an emergency savings safety net big enough to cover 3-6 months’ worth of essential spending – in a competitive easy access savings account – so you’re in better shape to deal with whatever is on the horizon.

“At the moment, the HL Barometer shows just over half of people are in this position (52 per cent), so it’s worth taking stock to see whether you need to prioritise your savings.

“There’s every sign that times are set to get tighter for those in work, so it makes sense to build your resilience and start saving sooner rather than later.”