The UK's unemployment rate has climbed to its highest level since the pandemic, reaching five per cent as the labour market shows continued signs of strain under economic pressures.
Key Labour Market Indicators Show Decline
According to the Office for National Statistics, the unemployment rate hit five per cent in the latest quarter, marking a significant rise since Labour came to power. The data revealed there were 32,000 fewer payrolled employees in September, with analysts estimating a further drop of similar magnitude in October, though this figure is subject to future revision.
Liz McKeown, director of economic statistics at the ONS, stated: "Taken together these figures point to a weakening labour market. 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."
Wage Growth and Inflation Concerns
While unemployment rises, wage growth shows signs of slowing but remains problematic for inflation targets. In the three months to September, average earnings excluding bonuses grew by 4.6 per cent, while pay including bonuses hit 4.8 per cent - slightly down from last month's five per cent figure.
These wage growth levels remain above what economists consider comfortable for bringing inflation down to the Bank of England's two per cent target. The stubbornness of UK inflation has been partly attributed to higher pay packages increasing business costs, maintaining elevated price growth according to MPC members like Clare Lombardelli and Megan Greene.
Policy Implications and Forecast Revisions
The new figures are likely to concern policymakers at the Bank of England, Treasury, and Department for Work and Pensions, particularly with the Budget scheduled for 26 November. This represents the final set of labour market data officials will see before the crucial budget announcement.
The steady rise in unemployment from 4.4 per cent over the previous seven months may prompt the Office for Budget Responsibility to update its earlier, more optimistic forecast. In March, the OBR predicted unemployment would peak at 4.5 per cent in 2025 before falling to 4.1 per cent by 2028. However, Bank economists now suggest the rate could peak at 5.1 per cent in coming months.
Divisions are emerging within the Monetary Policy Committee, with hawkish members focusing on high inflation expectations despite rising unemployment, while more dovish members argue that a weakened jobs market could help dampen growth and bring inflation down to target levels.
