The UK's unemployment rate has surged to its highest level since the end of 2020, according to official data released just weeks before the Chancellor's crucial autumn budget.
Official Figures Paint a Grim Picture
The Office for National Statistics (ONS) reported that the jobless rate rose to 5% for the three months to September, a significant increase from the 4.8% recorded last month. This jump was larger than economists had predicted and marks the highest level since the period between December 2020 and February 2021.
To provide context, the unemployment rate stood at just 4.1% when the Labour government first took office last year, highlighting a steady and concerning deterioration in the jobs market.
Further experimental data from HMRC, also released by the ONS, offered no respite. It showed a decline of 32,000 in payrolled employment during October. This suggests a pause in the recent trend of slowing declines, reversing a pattern seen since the sharp falls that began in the spring.
Policy Impacts and Political Fallout
The spring of this year coincided with the implementation of measures from Chancellor Rachel Reeves's first budget. Key changes that came into effect in April included hikes in the minimum wage and increases to employer national insurance contributions.
These policies have been heavily criticised by the government's opponents, who accuse the Treasury of damaging job creation and private sector investment sentiment through what they term a £25 billion tax raid on employers.
Liberal Democrat Treasury spokesperson Daisy Cooper was vocal in her criticism, stating, "Surely the writing is on the wall now for the Chancellor's jobs tax... The Government must reverse their damaging National Insurance hike at the Budget."
This challenging economic period also overlapped with peak uncertainty from the US trade war, as former President Donald Trump ramped up tariffs.
Broader Economic Context and Future Outlook
Liz McKeown, ONS Director of Economic Statistics, summarised the situation, saying, "Taken together these figures point to a weakening labour market. The number of people on payroll is falling... Meanwhile the unemployment rate is up in the latest quarter to a post pandemic high."
She also noted that while private sector wage growth has slowed, public sector pay growth remains stronger due to some pay rises being awarded earlier than last year.
In a potential silver lining, the weakening jobs market and slowing wage growth could bolster the case for the Bank of England to implement an interest rate cut next month, provided inflationary pressures continue to ease.
All eyes are now on Chancellor Rachel Reeves as she prepares for her second budget, due on 26 November. She has already signalled a potential break from Labour's manifesto pledge not to raise income tax, national insurance, or VAT, citing that "the world has changed" since those promises were made.
