Director Weekly  New data on UK jobs market and public sector borrowing add to sense of concern about the economy’s trajectory.

Unfortunately, three significant sets of data released this week point to the deepening predicament we’re in.

1. A worsening labour market

Some of the media headlines about April’s labour market overview from the Office for National Statistics focused on the fall in the unemployment rate to 4.9%. But this was not a good news story: rather, many people have stopped looking for work – particularly students. Vacancies fell again, as did the number of payrolled employees.

In fact, vacancies are half the level they were in 2022 at the beginning of the Ukraine war. Wage growth today is much weaker, too – and will remain so while the jobs market is soft.

That will have a major bearing on where we go next with inflation and interest rates. As companies confront the war-related cost shock, will they be able to pass on price rises to consumers who are already under pressure? Discretionary spend could be particularly hard hit. In many sectors, profits are already squeezed; companies can’t just absorb cost increases. Something will have to give: but what?

One possibility is that the workforce bears the brunt of the pressure. A sharper spike in unemployment and redundancies is a real possibility.

The uncertainty around these second-round effects is a major reason why next week’s Bank of England interest rate decision should be a hold. Under current circumstances, wait-and-see makes sense – though if the current supply pressures persist, the position will surely change.

2. Public sector borrowing is higher than expected
Data from the ONS reveals an initial estimate for public sector borrowing in 2025-26 of £132 billion. That’s £0.7 billion less than forecast by the Office for Budget Responsibility and something of a boost for Rachel Reeves.

The Treasury will be watching the data closely. Tax receipts may rise initially as energy and goods prices rise, but that is likely to be more than outweighed by higher government borrowing costs, inflation-linked public spending increases and a wider slowdown. If and when the public finances do come under increasing pressure, that pressure will need to be shared rather than directed at businesses.

3. No great changes on energy policy
This week also saw Energy Secretary Ed Miliband give a speech on “the era of clean energy security.” This government, he proclaimed, “believes that clean energy is the great industrial and economic project for our country in the 21st century.”

Yet behind the rhetoric, policy announcements were relatively limited – including tweaking rather than fundamentally reforming electricity pricing.

And the government is sticking to the North Sea strategy it produced last year. Acknowledging the UK’s dependence on fossil fuels, Miliband confirmed that existing North Sea fields will stay open for their lifetime – but no new licences will be granted. Instead, the government will permit tiebacks for those fields – smaller satellite fields connected to existing infrastructure. (More details of the Transitional Energy Certificates required have now been published.)

Businesses confronted by spiking energy costs will have been left wondering why the renewable energy transition is still so much more expensive for UK businesses compared with other countries. And why we’re choosing to pay other countries for fossil fuels rather than monetising our own resources.

The economic outlook is getting gloomier. And the need for material action to lift growth and raise resilience is growing more urgent.