The UK's unemployment rate has reached a significant milestone, climbing to 5% in September, its highest level in four years. This marks a steady increase from 4.8% the previous month, directly impacting approximately 1.8 million people across the country.
Budgetary Tightrope for the Chancellor
Chancellor Rachel Reeves faces a formidable challenge in her upcoming budget on 26 November. She must navigate the delicate task of raising tens of billions in extra tax revenue without further depressing the economy and exacerbating the jobs crisis. This comes after a year where the government's focus on economic growth appeared to overshadow the swelling ranks of the unemployed.
Businesses have consistently pointed to the rising costs of employment as a key concern. The situation could worsen if the forthcoming budget introduces further disincentives for hiring, potentially compounding the effects of April's rise in national insurance contributions. Another factor on the horizon is a substantial rise in the minimum wage expected to be announced for next April, which, without careful handling, could lead to fewer job opportunities.
Economic Indicators and the Bank of England's Dilemma
Other economic signals are also flashing warning signs. The growth in average wages, including bonuses, slowed to 4.8% in September from 5% in August. A flash estimate for October suggests this slowdown could accelerate, with wage growth potentially dropping to as little as 3.1%.
All eyes are now on the Bank of England. Threadneedle Street's policymakers are set to meet next month to assess the economy's health and decide on the future of interest rates. While the central bank has acknowledged the rising jobless figures, it has previously indicated that more job losses might be necessary before it acts to cut rates from the current 4%.
However, financial markets are sending a strong message. After previously betting on a delay until early 2026, traders now believe a rate cut in December is almost certain. This shift in sentiment was reflected in the pound falling against the dollar on Tuesday, indicating reduced demand for sterling in anticipation of lower borrowing costs.
Broader Implications and a Shifting Jobs Market
The unemployment data also reveals a growing disparity in pay growth. Public sector workers have seen wages rise by 6.8%, including bonuses, compared to just 4.4% in the private sector. This gap is likely to fuel public debate on wages and could lead to increased industrial action.
For the unemployed, there is a potential upside. The combination of the November budget being finalised and an expected interest rate cut to 3.75% in December could stimulate the economy, leading to monthly growth and new job creation.
Yet, the underlying trend in the labour market is concerning. The era of labour hoarding, where employers retained staff during downturns, appears to be over. Whether due to the adoption of artificial intelligence or a generally pessimistic outlook in sectors like the car industry, businesses are now quicker to let workers go, with less regard for future rehiring needs.
