22 April 2026: The unemployment rate unexpectedly falls

The UK labour market is sending mixed signals, with the latest figures from the Office for National Statistics revealing an employment paradox.

While the headline unemployment rate has fallen to 4.9%, this statistic masks a deeper structural issue: a shrinking labour force. When unemployment falls because people stop looking for work, it is a sign of economic contraction, not strength. This divergence between headline figures and underlying participation rates is causing significant anxiety among policymakers and business leaders alike.

The primary driver of the fall in unemployment is a sharp rise in economic inactivity, with individuals who are not actively seeking employment no longer counted in the jobless rate. The Director of Economic Statistics at the ONS has pointed to data indicating a decline in student engagement with the job market, alongside broader trends of workforce withdrawal.

This shrinking pool of labour is a direct constraint on productivity, creating inflationary pressure that the Bank of England is struggling to contain.

The Chief Economist at KPMG has warned that although the labour market showed signs of stabilisation in February, the outlook is increasingly bleak. Firms are scaling back hiring plans in response to the double threat of rising operational costs and weakening consumer demand. This is the very definition of a "tightening" labour market in the wrong direction, with wages suppressed not by productivity gains but by business fragility.

When external shocks, such as regional wars, disrupt global supply chains, the effects are felt locally in labour markets. Businesses, unable to plan for long-term growth, pivot to cost-cutting, leading to a "hollowing out" of the workforce.

If the UK cannot stimulate workforce participation or business investment, it risks entering a prolonged cycle of stagnation. The government's key task will be to incentivise workforce re-entry while managing the inflationary pressures that threaten to erase any gains in wage growth.

Ollie Robbins, the former senior civil servant at the Foreign Office, who was removed from that position last week, gave evidence to the Parliamentary Foreign Affairs Committee yesterday.

Robbins said he is “desperately sad” about being sacked over the failure to disclose Lord Peter Mandelson’s failed security checks and does not “fully understand” why it happened.

Sir Olly said he is “intensely proud” of his former colleagues and wished he “could still be with them”.

The former permanent secretary at the Foreign Office took on the role in January 2025, when Lord Mandelson’s vetting process was already underway.

He told MPs yesterday that there was a “dismissive approach” to Lord Mandelson’s security vetting from No 10.

Asked for his reaction to how he has been treated, he told the Foreign Affairs Committee: “The very short answer is I don’t fully understand the reasons that I’m in the position I am in, but that is for a separate process for me to try to get to the bottom of.”

He insisted that only the outcome of the vetting process, which was that Lord Mandelson was granted security clearance, should be shared with Ministers, rather than the concerns raised.

Sir Keir Starmer told his Cabinet that Sir Olly was “a man of integrity and professionalism” who made an “error of judgment”. At the same time, Downing Street denied claims of a dismissive approach towards the process.

The initial announcement that Lord Mandelson was being sent to Washington as UK ambassador was made before Sir Olly took up the role of permanent under-secretary at the Foreign Office in January 2025.

By that time, the process of clearing the peer was well underway, and the Cabinet Office had raised questions about whether he needed to undergo formal vetting at all.

Despite the debate in Parliament on Monday and the testimony of Sir Ollie Robbins yesterday, ultimately it will be for the public to decide who they believe.

There are interesting parallels between Stermer’s performance on Monday and Boris Johnson’s claim that he was unaware what was happening in Number Ten “right under his nose. At the time, Starmer, then Leader of the Opposition, said that it was unbelievable that he was unaware, a situation that the Prime Minister now finds himself in.

The pound lost ground as risk appetite shrank amid the expected end of the U.S.-Iran ceasefire. Trump’s announcement of a continuation of the pause in hostilities while talks are ongoing, while encouraging, may well be short-lived, since Tehran currently does not intend to send negotiators to Islamabad.

Sterling fell to a low of 1.3475 and closed at 1.3507.

President Donald Trump's nominee to chair the Federal Reserve said yesterday that he has never promised the White House that he would cut interest rates, even as the President renewed his calls for the Central Bank to do so.

"The President never once asked me to commit to any particular interest-rate decision," Kevin Warsh, a former top Fed official, said under questioning from the Senate Banking Committee. "Nor would I ever agree to do so if he had. I will be an independent actor if confirmed as chair of the Federal Reserve."

Warsh's comments came just hours after Trump, in an interview on CNBC, was asked whether he would be disappointed if Warsh didn't immediately cut rates, and he responded, "I would."

The comments underline the challenge faced by Warsh, 56, a financier and former member of the Fed's Board of Governors whom Trump named in January to replace the current Fed chair, Jerome Powell.

Democrats on the committee accused Warren of flip-flopping on interest rates over the years, supporting higher rates under Democratic Presidents and advocating rate cuts during Trump's presidency. Investors are watching the hearing closely to see how Warsh balances Trump's demands against worsening inflation, as the war in Iran pushes up gasoline prices.

Warsh's testimony was challenged by Sen. Ruben Gallego, an Arizona Democrat, who said that a Wall Street Journal report last year found that Trump had urged Warsh to reduce borrowing costs once he took over.

"Who's lying here? Is it you or the President?" Gallego asked.

"I think those reporters need better sources," Warsh responded.

Despite the back-and-forth, the hearing didn't appear to advance Warsh's nomination, which has been delayed by a Justice Department investigation into the Fed and Powell, even though Powell testified last June before the same panel about a building renovation.

Sen. Thom Tillis, a North Carolina Republican on the committee and the main cause of the delay in the approval of Warsh’s nomination, reiterated that he wouldn't vote for Warsh until the investigation is dropped. With the committee closely divided and all Democrats opposing his nomination, Tillis' opposition is enough to bottle it up in committee.

US retail sales rose 1.7% month-on-month in March 2026, according to the Census Bureau, beating market expectations for a more modest 1.4% increase and following February's upwardly revised 0.7% increase.

March's reading marked the steepest rate of growth since January 2023, primarily due to a 15.5% surge in gasoline station receipts as fuel prices rose amid the US-Israeli conflict with Iran.

Sales increased at motor vehicle and parts dealers, furniture and home furnishing stores, electronics and appliance stores, building materials and garden equipment suppliers, food and beverage stores, health and personal care stores, general merchandise stores, and non-store retailers.

Core retail sales, which exclude food services, auto dealers, building materials, and gasoline stations, increased 0.7% month-on-month, also beating expectations for a reading of 0.2%.

Spring is traditionally the time for people to work on home improvements and repair any damage that occurred during the winter.

President Trump says the ceasefire in the War in Iran has been extended indefinitely following a request from Pakistan’s Prime Minister and top military official, as Islamabad continues to arrange the second round of high-stakes peace talks between the United States and Iran.

This will allow more time for diplomacy, even though the second round of peace talks is on hold. However, the U.S. blockade of Iran's entry points to the Strait of Hormuz will remain in place.

The announcement came via a post by Trump on his social media platform, Truth Social, a day before the existing truce was set to expire, following a request from Pakistan’s Prime Minister Shehbaz Sharif and Field Marshal Asim Munir.

Sharif later thanked Trump for his “gracious acceptance” of Pakistan’s request, saying the ceasefire extension would allow ongoing diplomatic efforts to proceed.

The dollar index regained its losses from the last five market sessions yesterday, rallying to a high of 98.37 and closing at 98.38.

The European Central Bank should keep the option of an interest-rate increase alive at its next meeting as it collects information on the damage to inflation and growth from the war in Iran, German Bundesbank President Joachim Nagel said.

“There is not enough clarity on what will happen this month”, but “I will not exclude one or the other thing,” he told Bloomberg Television. “We will take into account the data we will have in April, and then we will see.”

The fighting in the Middle East, whose knock-on effects are a reminder of the price spike that followed Russia’s invasion of Ukraine in 2022, has put the ECB in a tricky spot. The surge in energy costs that’s driving inflation higher suggests officials may need to raise rates. Tighter monetary policy, however, would risk further crimping a nascent economic recovery.

“In the medium term, inflation seems to be well anchored, but this can change,” Nagel said. “So it’s really too early to say that we are on safe ground. It’s a very shaky situation.”

Nagel argued that the Eurozone economy has moved beyond the ECB’s base case and is trending towards a more painful outcome due to the war in Iran, echoing an earlier assessment by President Christine Lagarde.

“I would say we are somewhere in between our baseline scenario and our adverse scenario,” he said. “Now we have to find out where it’s going. If it goes back to the baseline scenario, I’m a very happy person. But as I said, we should keep our flexibility.”

Lagarde had earlier told Bloomberg Television that she and her colleagues must be “highly agile” and “ready to move in the direction that is required,” while stressing that there’s currently no bias towards raising borrowing costs.

Meanwhile, the European Central Bank must be cautious when setting interest rates, given the significant uncertainty surrounding the war in Iran, ECB Vice-President Luis de Guindos said yesterday.

It seems that senior members of the Central Bank’s Governing Council are “singing from the same hymn sheet”.

The ECB is due to meet next week, and policymakers, including President Christine Lagarde, have been suggesting they do not yet have enough evidence to raise rates to curb an energy-fuelled rise in inflation.

De Guindos, too, called for caution and said the ECB should focus on whether higher oil and gas prices are raising other prices.

"I believe we need to be cautious, keep a cool head and analyse the data in a context of tremendous uncertainty," de Guindos told an event in Spain.

He echoed colleagues, seeing only a temporary rise in inflation, with an adverse scenario involving larger and more enduring spillovers possible if the war becomes “extended”.

De Guindos also warned of three sources of risk to financial stability in the Eurozone: high market valuations, loose fiscal policy in some countries, and trouble in private credit.

He is due to present the final Financial Stability Review of his mandate as an ECB board member on May 27, before stepping down at the end of that month.

The Euro lost ground to a stronger dollar yesterday. The single currency fell to a low of 1.1719 and closed at 1.1743.

Have a great day!