The UK unemployment rate has climbed to 5% in the three months to September, reaching its highest level since early 2021, according to the Office for National Statistics (ONS).
The increase marks a sharper rise than expected, surpassing the 4.9% projected by analysts ahead of the 26 November Budget. It signals that the UK labour market is losing momentum after a period of relative resilience.
Average wage growth slowed slightly to 4.6% in the third quarter, down from 4.7% in the three months to August.
ONS and Expert Reactions
Liz McKeown, Director of Economic Statistics at the ONS, said the data “points to a weakening labour market” as the unemployment rate reaches a post-pandemic high.
“The number of job vacancies remains broadly unchanged, but the rise in unemployment suggests businesses are holding back on hiring,” she added.
The ONS cautioned that its unemployment estimates should be “treated with care” due to ongoing efforts to improve data reliability.
Government and Political Response
Work and Pensions Secretary Pat McFadden acknowledged the slowdown but defended the government’s record:
“Over 329,000 more people have moved into work this year already, but today’s figures show why we’re stepping up our plan to get Britain working.”
However, Mel Stride, the Conservative Shadow Chancellor, criticised Labour’s handling of the economy:
“How can Labour claim to stand with working people when, under their watch, fewer of them are in work?”
Payroll and Sector Breakdown
Early estimates show the number of people on company payrolls fell by 180,000 in the year to October, a 0.6% drop, exceeding forecasts.
Despite the decline, nearly 1.7 million people are still claiming unemployment benefits, a slight improvement on last year’s figure.
Pay growth diverged significantly between sectors:
- Public sector pay increased 6.6%, boosted by previous wage agreements.
- Private sector pay grew 4.2%, reflecting weaker bargaining power as more people seek work.
Yael Selfin, Chief Economist at KPMG UK, said public sector pay growth is “approaching a peak” amid tighter government budgets, while private sector pay is “expected to fall further” due to rising competition for jobs.
Businesses Hold Back Ahead of Budget
Richard Carter, Head of Fixed Interest Research at Quilter Cheviot, noted that uncertainty surrounding the upcoming Budget has caused employers to pause recruitment plans.
“Businesses are wary of making commitments, especially after facing higher national insurance costs earlier this year,” he said.
Tina McKenzie, Policy Chair of the Federation of Small Businesses (FSB), said the figures highlight the government’s “complacent attitude” towards jobs and business growth.
“Small firms are being held back by excessive regulation and rising taxes. The Chancellor must take decisive action to support jobs and boost confidence.”
Outlook: A Slower Jobs Market Ahead
The Bank of England forecasts that unemployment will remain close to 5% for several years, as high interest rates and weak business confidence continue to weigh on hiring.
Vacancies remain steady at around 723,000 between August and October suggesting that while job opportunities persist, employers are being more selective and cautious amid ongoing economic uncertainty.
