Falling unemployment masks rising inactivity as UK labour market weakens

Despite a headline fall in unemployment to around 4.9%, the UK labour market looks less like a boom and more like a statistical sleight of hand: inactivity is rising, while employment and vacancies drift down and wage growth slows. The drop in joblessness reflects fewer people seeking work rather than stronger labour demand, signalling underutilised labour and a negative output gap. Even with GDP surprising at 0.5% growth in February 2026, momentum may fade as CPI inflation hits 3.3% in March, with Middle East tensions feeding through to prices. Higher inflation squeezes real incomes, dampens demand, and—if prolonged—raises recession risks, making the improvement likely temporary.

Unemployment rate unexpectedly falls as fewer students look for work - BBC News

1. Explain how rising economic inactivity among students helped cause the unemployment rate to fall in February.

2. Examine why war in the Middle East is contributing to cost-push inflation pressure in the UK.

3. Discuss TWO macroeconomic policies that could be used to prevent a recession in the UK economy.