Unemployment rate surges to 5 per cent
The UK unemployment rate has surged to a post-pandemic high in further signs the jobs market has struggled to bounce back, amid interest rate cuts and adjustments to last year’s tax raid on employers.
The Office for National Statistics (ONS) said the unemployment rate had hit 5 per cent as there were 32,000 fewer payrolled employees in September.
It also estimated a further drop of 32,000 in payrolled employees across October though this figure is expected to be revised in future publications.
ONS analysts said the number of vacancies were “broadly unchanged” over the last three months.
Data also pointed to a slowdown in wage growth. In the three months to September, average earnings excluding bonuses grew 4.6 per cent, which remains above levels at which economists feel more comfortable about inflation coming down to the Bank of England’s two per cent target.
Including bonuses, pay growth hit 4.8 per cent, slightly lower than last month’s five per cent figure. Public sector pay growth also continued to ouptace that seen in the private sector.
“Taken together these figures point to a weakening labour market,” said Liz McKeown, director of economic statistics at the ONS.
“The number of people on payroll is falling, with revised tax data now showing falls in most of the last 12 months. Meanwhile the unemployment rate is up in the latest quarter to a post pandemic high.”
The new figures are likely to unnerve some policymakers at the Bank and officials across the Treasury and Department for Work and Pensions.
Hawkish members on the Bank’s Monetary Policy Committee (MPC) have looked past rising unemployment to raise concerns about high inflation expectations across the UK economy.
The stubbornness of inflation in the UK has partly come due to higher pay packages adding to costs on firms, leading price growth to remain high, the likes of Clare Lombardelli and Megan Greene have argued.
The Bank’s central projections predict that wage growth in the private sector could drop to around three per cent by mid-2027.
But more dovish members on the MPC have said that a weakened jobs market, due to fewer vacancies and rising unemployment, could dampen growth and bring inflation down to two per cent.
Unemployment forecast errors
Treasury officials and Office for Budget Responsibility (OBR) economists will also take a closer look at fresh labour market data released on Tuesday morning as it will be the last set of results presented to them before the Budget on 26 November.
The steady rise in the unemployment rate over the previous seven months from 4.4 per cent could prompt the OBR to update its more optimistic forecast.
In response to the latest set of data, work and pensions secretary Pat McFadden said: “Over 329,000 more people have moved into work this year already, but today’s figures are exactly why we’re stepping up our plan to Get Britain Working.
“We’ve introduced the most ambitious employment reforms in a generation to modernise jobcentres, expand youth hubs and tackle ill-health through stronger partnerships with employers.
“This week we’re going further by launching an independent investigation that will bolster our drive to ensure all young people are earning or learning.”
Jack Kennedy, a senior economist at the jobs platform Indeed, said new data showed businesses remained cautious about taking on new staff ahead of a difficult Budget.
“Employer confidence remains fragile ahead of a Budget that’s likely to bring significant tax increases, with many continuing to be cautious on hiring until they get greater visibility on the policies to be announced,” Kennedy said.
It said in March that it expected the unemployment rate would peak at 4.5 per cent in 2025 before dropping back to 4.1 per cent by 2028.
But economists at the Bank have said that the unemployment rate could yet peak at 5.1 per cent in the coming months.
Shadow business secretary Andrew Griffith has said the rise in unemployment should leave Labour ministers disappointed.
“With young people most impacted, ‘Generation jobless’ is now happening on their watch.”