The UK’s unemployment rate has risen to 5% in the three months to September, reaching its highest level since December 2020 to February 2021, according to official figures from the Office for National Statistics (ONS). Analysts had expected a smaller increase, projecting a rate of 4.9% ahead of the Chancellor’s Budget on 26 November.
Average wage growth slowed slightly, with pay rising 4.6% in the third quarter, down from 4.7% in the three months to August. ONS director of economic statistics Liz McKeown said the combination of figures points to a weakening labour market. She noted that while unemployment has climbed to a post-pandemic high, the number of job vacancies remained broadly stable.
The ONS cautioned that the unemployment rate should be interpreted carefully and is taking steps to improve the quality of its data. The Bank of England has projected unemployment will remain around 5% in the coming years. The Monetary Policy Committee is set to meet on 18 December to consider a potential interest rate cut, with some analysts suggesting the latest unemployment figures could influence their decision.
Danni Hewson, head of financial analysis at AJ Bell, said expectations of a rate cut have risen sharply but added that clarity on the Chancellor’s full Budget plans is essential before any conclusions are drawn.
Work and Pensions Secretary Pat McFadden acknowledged challenges in the labour market but emphasized that the economy is still generating jobs. He highlighted concerns over the rising number of young people not in employment or training over the past five years.
The Conservative shadow work and pensions secretary, Helen Whately, blamed government policies for reducing job opportunities. She said the rise in unemployment leaves thousands of families without a reliable income, citing higher taxes, regulatory burdens, and weakened business confidence as contributing factors.
Early estimates show the number of people on company payrolls fell by 180,000 in the year to October, a drop of 0.6%, exceeding forecasters’ predictions. Job vacancies, however, increased slightly by 2,000 to 723,000 between August and October, marking the first quarterly rise in more than three years after a steady decline from a peak of 1.3 million in early 2022.
The ONS data also reveals a gap in pay growth between sectors. Public sector wages rose 6.6%, while private sector pay increased 4.2%. Yael Selfin, chief economist at KPMG UK, said public sector pay growth is likely to peak as large increases from last year are not expected to continue amid budget pressures. Private sector wage growth is anticipated to fall as more people compete for work, weakening workers’ bargaining power.
Richard Carter of Quilter Cheviot suggested many businesses have delayed hiring ahead of the Budget, citing concerns over previous national insurance hikes and potential future costs. Tina McKenzie of the Federation of Small Businesses said the rise in unemployment highlights the government’s complacency toward jobs and small enterprises, adding that regulatory and tax burdens continue to hinder employment growth.
The latest figures indicate a fragile labour market, with slower wage growth and declining payroll numbers raising concerns as policymakers prepare for the upcoming Budget.
