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UK unemployment climbs to 5% as labour market weakens ahead of Budget
The UK unemployment rate rose to 5% in the three months to September, its highest level since early 2021, according to the Office for National Statistics (ONS), signaling a cooling jobs market and raising expectations of an interest rate cut in December.
The figure surpassed analyst forecasts of 4.9% and marks the steepest rise since August 2016, excluding pandemic-era distortions. The ONS cautioned that the data should be interpreted carefully amid ongoing efforts to improve its accuracy.
Wage growth slows as public-private pay gap widens
Average wage growth eased to 4.6% in the third quarter, down from 4.7% in the previous period. The data revealed a stark divide: public sector pay surged 6.6%, while private sector wages grew just 4.2%.
Yael Selfin, chief economist at KPMG UK, noted that public sector pay growth is "approaching a peak" due to budget constraints, while private sector wage increases are likely to decline further as jobseekers flood the market, reducing workers' bargaining power.
Payrolls shrink, vacancies edge up
Early estimates show a 0.6% annual decline in payrolled employees-180,000 fewer jobs-exceeding expectations. Meanwhile, job vacancies rose by 2,000 to 723,000 between August and October, the first increase in over three years, though still far below the 1.3 million peak in early 2022.
Nearly 1.7 million people claimed unemployment benefits, a slight year-on-year decrease. Work and Pensions Secretary Pat McFadden acknowledged labour market challenges but emphasized job creation, while Shadow Secretary Helen Whately blamed government policies for "hiking taxes on jobs and piling red tape on businesses."
Rate cut speculation grows ahead of Budget
Economists now anticipate a Bank of England interest rate cut on 18 December, with Danni Hewson of AJ Bell noting that expectations have "risen sharply." However, analysts warn that Chancellor Rachel Reeves' upcoming Budget (26 November) could influence the decision.
Richard Carter of Quilter Cheviot suggested businesses are deferring hiring plans amid uncertainty over potential tax hikes, while Tina McKenzie of the Federation of Small Businesses criticized the government's "complacent attitude" toward job creation, citing regulatory and tax burdens.
"Supplies have stabilized, but conservation remains essential."
Liz McKeown, Director of Economic Statistics, ONS
Outlook
The Bank of England projects unemployment will hover near 5% in the coming years, while Liberal Democrat Treasury spokesperson Daisy Cooper accused Reeves of ignoring warnings that higher employment taxes would "damage job opportunities."
