UK unemployment rate to rise in 2018, says EY Item Club

Unemployment is set to increase amid a slower growth in jobs, a new report predicts.

The jobless rate will rise from about 4.7% this year to 5.4% in 2018 and 5.8% in 2019, said the EY Item Club.

The forecasting group said employment will fall for the first time since 2009, albeit only by 0.1% next year, as the supply of workers slows.

Official unemployment data and average wages will be published by the Office for National Statistics on Wednesday.

The UK jobless rate is currently 4.7%, according to latest ONS figures.

The Item Club said that a slowing supply of jobs is behind its forecast, as employers adjust to a tightening labour market by greater use of existing staff.

"The UK labour market may be starting to become a victim of its own success," said Martin Beck, senior economic adviser to the Item Club.

"As the proportion of people in work has climbed ever higher, firms may have found it more difficult to fill vacancies, resulting in greater utilisation of the existing workforce and slower jobs growth."

He added: "On a positive note, slower growth in the workforce may deliver a boost to what has been a long period of insipid productivity growth.

"With the flow of potential workers slowing, firms are likely to have more incentive to invest in improving efficiency or labour-saving technology," he said.

Average earnings are expected to increase by 2.75% this year and at similar rates in 2017 and 2018. However, prospects for growth in real pay, taking inflation into account, look less bright, the report predicted.