UK Job Market Shows Signs of Contraction as Unemployment Rises
New data from the Office for National Statistics (ONS) reveals a significant cooling of the UK labour market, with the unemployment rate climbing to its highest point in more than four-and-a-half years. The figures indicate growing economic pressure as employers scale back hiring amidst widespread uncertainty.
Key Statistics Point to a Weakening Market
The official data shows that the UK unemployment rate reached 5% for the three months leading to September. This marks an increase from the previous figure of 4.8% and surpasses analyst predictions, which had forecast a smaller rise to 4.9%. This is the highest the jobless rate has been since early 2021.
Compounding the concerns, wage growth has continued to lose momentum. Average regular pay, excluding bonuses, increased by 4.6% in the three months to September, down from 4.7% in the previous period. This represents the slowest pace of wage growth since April 2022.
Although pay is still rising faster than inflation, the advantage is shrinking. After adjusting for Consumer Prices Index (CPI) inflation, real wages saw an increase of just 0.8%, compared to 0.9% in the prior quarter.
Payrolls Shrink and Economic Implications
Adding to the bleak picture, the ONS estimated that the number of workers on company payrolls fell sharply. There was a decline of 32,000 employees in October, bringing the total to 30.3 million. This follows a similar drop in September, creating the most significant two-month decline since the end of 2020.
Economists interpret this trend as a clear sign of a cooling job market. 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... Meanwhile, the unemployment rate is up in the latest quarter to a post-pandemic high."
This data is likely to influence the Bank of England's upcoming decisions on interest rates. Martin Beck, chief economist at WPI Strategy, noted that the slowing pay growth and weak labour market strengthen the case for an interest rate reduction next month.
In a slight positive note, vacancies saw a marginal increase of 2,000 (0.2%) to 723,000 in the three months to October. However, this small gain was overshadowed by the broader negative trends, which also caused Sterling to weaken against both the US dollar and the euro.
