LONDON— The United Kingdom’s unemployment rate rose to 5 percent in the three months ending in September, the highest level since early 2021, official figures show, signaling a weakening labor market amid ongoing economic pressures.
The Office for National Statistics reported the rise in unemployment came in above the 4.9 percent projected by many analysts ahead of the government’s upcoming budget announcement on November 26.
Average wage growth slowed slightly to 4.6 percent in the third quarter, down from 4.7 percent in the three months to August.
Liz McKeown, director of economic statistics at the ONS, said the figures reflected broader challenges in the labor market.
“Taken together, these figures point to a weakening labor market,” McKeown said. “The unemployment rate is up to a post pandemic high, though the number of job vacancies remains broadly unchanged.”
The ONS cautioned that its unemployment rate data should be treated carefully and said it is taking steps to improve the quality of labor market statistics.
The Bank of England has forecast that unemployment is likely to hover around 5 percent over the coming years, as economic growth faces headwinds from rising costs, slowing consumer demand, and ongoing uncertainty in global markets.
The bank’s Monetary Policy Committee is scheduled to meet on December 18 to consider a possible interest rate cut. Analysts said the new unemployment figures could influence that decision.
Danni Hewson, head of financial analysis at AJ Bell, said the higher than expected unemployment rate could increase expectations for a policy response from the central bank.
“Until we see all the chancellor’s workings in black and white, no one is taking anything for granted,” Hewson said, noting that the figures could influence both monetary and fiscal policy decisions.
Yael Selfin, chief economist at KPMG UK, highlighted differences between public and private sector wage growth, saying the divergence reflects government budget pressures and labor market dynamics.
“Public sector pay growth is approaching a peak as large pay rises from last year are not expected to continue,” Selfin said. “Private sector pay growth is anticipated to fall further as more people seek work, weakening workers’ bargaining power.”
Richard Carter, head of fixed interest research at Quilter Cheviot, said uncertainty ahead of the Budget was weighing on business hiring plans.
“Having already faced a significant rise in national insurance costs earlier this year, many businesses are likely nervous about making real commitments until they know whether further costs are coming,” Carter said.
The ONS reported that the number of people on company payrolls fell by 180,000 in the year to October, a drop of 0.6 percent, exceeding forecasts.
At the same time, job vacancies saw a modest increase of 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.
Nearly 1.7 million people are currently claiming unemployment benefits, a slight decrease compared with the same period last year. Wage growth in the public sector reached 6.6 percent, compared with 4.2 percent in the private sector.
Pat McFadden, the Work and Pensions Secretary, acknowledged labor market challenges but emphasized continued job creation.
There are challenges in the labor market, but the British economy is still generating jobs, McFadden said. He also expressed concern about the rising number of young people not in employment or training over the past five years. Opposition politicians criticized government policies for contributing to job insecurity.
Helen Whately, the Conservative shadow work and pensions secretary, said the increase in unemployment left thousands of families without regular income and blamed the chancellor’s “bad choices” on tax hikes, regulatory burdens, and confidence erosion.
Tina McKenzie, policy chair of the Federation of Small Businesses, noted that small businesses face regulatory and financial pressures limiting their ability to hire.
“The increase in unemployment and reduction in payroll numbers show a complacent attitude toward jobs and businesses,” McKenzie said. Analysts predict that the UK labor market will remain under pressure in the near term.
The Bank of England’s projections, coupled with cautious business sentiment, suggest that unemployment could stay around current levels for the next few years.
Wage growth in the private sector is expected to slow further, while public sector pay increases may stabilize due to budget constraints.
Economic experts emphasize that policy clarity ahead of the November 26 Budget will be critical in shaping labor market confidence and employment trends.
Businesses and workers alike are expected to monitor government decisions closely in the coming weeks. The latest UK unemployment figures highlight a labor market under strain, with wage growth slowing and job losses exceeding forecasts.
While job vacancies have shown a slight increase, the broader trend points to economic uncertainty and cautious hiring. Policymakers and business leaders will be watching closely as the government prepares its next set of economic measures.