MW Canary in the coal mine? The U.K. labor market has closely tracked the U.S. - and now it's weakening

By Steve Goldstein

The U.S. and U.K. labor markets have moved almost in lockstep the last three years - and now the British employment situation is definitively worsening.

The U.K. Office for National Statistics said the unemployment rate between February and April rose to 4.6%, its worst level in nearly four years. The U.K. jobless rate now would trigger the Sahm recession rule indicator, admittedly designed with the American economy in mind, which is when the three-month average of the unemployment rate moves at least a half-point above its low of the preceding 12 months.

Other U.K. labor market data is weakening as well: the ONS estimate of U.K. payrolls declined by 109,000 in May, after dropping 78,000 between February and April, the same government office said.

U.K. bond rose after the data, with the yield on the 2-year gilt BX:TMBMKGB-02Y falling nearly 10 basis points. Yields move in the opposite direction to prices.

The pound $(GBPUSD.FOREX)$ spluttered vs. the dollar, while the U.K. FTSE 100 UK:UKX was on a track for a record closing high.

The U.S. labor market so far has been cooling but not outright deteriorating. Data released on Friday showed the U.S. unemployment in May staying at 4.2% as payrolls rose by 139,000.

There are similarities between the two economies, both of which are consumer- and services- sector led.

Both have introduced new taxes - the U.K. implementing in April a new tax on employers, which the National Institute of Economic and Social Research estimates to be the equivalent of 0.6% of GDP. The U.S. is rolling out tariffs, which can roughly be thought of to be worth 1.7% of GDP, if using last year's 11.2% share of imported goods is combined with the Yale Budget Lab's estimate that the effective tariff rate is now 15.6%.

The U.S. economy has clear technological advantages, however, and is coming from a stronger base: the U.K. economy in the first quarter grew 1.3% from a year ago, versus 2.1% for the U.S., according to OECD data, and U.S. growth was around 3% for most of last year.

Nvidia $(NVDA)$ CEO Jensen Huang on Monday said his company was prepared to invest more in the U.K. after it builds out artificial intelligence infrastructure.

-Steve Goldstein

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

June 10, 2025 04:04 ET (08:04 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.