The UK unemployment rate rose to 5.1 percent, the highest since January 2021, as new data pointed to a further slowdown in the labor market and a slowdown in wage growth.
Figures released by the Office for National Statistics (ONS) showed the unemployment rate rose from 5 per cent in the three months to September to 5.1 per cent in the three months to October, in line with expectations from City economists and the Bank of England.
Unemployment remains particularly high among younger workers. The rate for 18- to 34-year-olds is 8.7 percent, reflecting weaker employment prospects for college graduates and young professionals this year.
The data also showed a decline in overall employment. The number of employed people fell by 38,000 in November after falling by 22,000 in October, pointing to continued job losses across the economy.
The latest figures come just days before the Bank of England’s interest rate decision on Thursday, with policymakers divided over whether to implement a fourth rate cut this year. The labor market is steadily losing momentum, particularly in low-wage sectors, which have been affected by higher employer social security contributions since April.
Wage growth continued to slow, easing concerns about inflation pressures. Average earnings growth fell from 4.9 percent to 4.7 percent, while regular salary excluding bonuses fell from 4.7 percent to 4.6 percent in the three months to October.
There was also a strong divergence between salaries in the public and private sectors. Private sector wage growth slowed to 3.9 percent from 4.2 percent – the weakest since the end of 2020 – while public sector wages accelerated to 7.6 percent. Economists said the gap was largely due to public sector pay deals agreed earlier in the year, which are now factored into year-on-year comparisons.
Across several private sector industries, including finance, business services and construction, wage growth fell below 3 percent – a level the Bank of England considers consistent with bringing inflation back to its 2 percent target.
Layoffs also increased, rising to 5.3 per 1,000 employees in the three months through October, the highest rate since February 2021.
Andrew Wishart, an economist at Berenberg, said the private sector is currently experiencing an “employment recession”.
“If we exclude the public sector and related professions, the number of jobs is falling annually at a rate not seen since the pandemic,” he said. “The positive surprise in wage growth driven by public sector wages should not deter the Bank of England from cutting interest rates this Thursday.”
The combination of rising unemployment and weaker wage growth is likely to strengthen the case for looser monetary policy. Bank Governor Andrew Bailey said he was waiting for further confirmation that inflation was on a sustained downward trend but could cast a deciding vote for a rate cut to 3.75 percent from 4 percent.
Inflation data for November expected on Wednesday is expected to show a decline from 3.6 percent to 3.4 percent annually. There was narrow disagreement over the bank’s earlier decision to maintain interest rates; Voted 5-4 to keep borrowing costs unchanged.
Callum McLaren-Stewart, an economist at Citi, said policymakers should look beyond distortions in public sector pay.
“Real wages are hardly positive overall,” he said. “Inflation risk depends on whether companies can pass on higher labor costs, which appears unlikely given the outlook for consumer demand through 2026.”
With unemployment rising and employment numbers falling, attention will now turn to whether the Bank of England will support the economy with a further cut in interest rates later this week.
