The UK labour market is showing clear signs of strain as unemployment climbs to its highest level since the pandemic, creating fresh challenges for policymakers at the Bank of England and Treasury.
Key Statistics Reveal Worsening Trend
The unemployment rate has reached five per cent, marking a post-pandemic peak according to the Office for National Statistics. The data shows there were 32,000 fewer payrolled employees in September, with preliminary figures suggesting a similar decline of 32,000 throughout October, though this latter figure is subject to revision in future publications.
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 the job market weakens, wage growth presents a mixed picture for economists. During the three months ending in September, average earnings excluding bonuses rose by 4.6 per cent, while pay including bonuses reached 4.8 per cent - slightly down from the previous month's five per cent reading.
Notably, public sector wage growth continues to outpace private sector levels. The persistence of wage increases above levels that would comfort inflation-watchers presents a dilemma for the Bank of England's Monetary Policy Committee.
Some hawkish MPC members have expressed concerns about high inflation expectations across the UK economy, arguing that elevated wage packages increase costs for firms and sustain price growth. The Bank's central projections anticipate that wage growth in the private sector could fall to around three per cent by mid-2027.
Policy Implications and Budget Scrutiny
The latest labour market data arrives at a critical moment for economic policymakers. Treasury officials and economists from the Office for Budget Responsibility will closely examine these results as they represent the final set of labour market statistics available before the Budget on 26 November.
The consistent seven-month increase in unemployment from 4.4 per cent could prompt the OBR to revise its more optimistic forecasts. Jack Kennedy, a senior economist at jobs platform Indeed, noted: "Employer confidence remains fragile ahead of a Budget that's likely to bring significant tax increases, with many continuing to be cautious on hiring until they get greater visibility on the policies to be announced."
In response to the challenging figures, Work and Pensions Secretary Pat McFadden highlighted government efforts: "Over 329,000 more people have moved into work this year already, but today's figures are exactly why we're stepping up our plan to Get Britain Working." The government has announced an independent investigation aimed at ensuring all young people are "earning or learning."
With economists at the Bank suggesting the unemployment rate could peak at 5.1 per cent in the coming months - significantly higher than March's projection of 4.5 per cent for 2025 - the pressure is mounting for effective policy responses to stabilise the UK's employment landscape.
