The United Kingdom’s unemployment rate climbed to 5% in the three-month period ending in September, according to the latest official figures. This increase suggests a weakening in the nation’s job market and has strengthened expectations that the Bank of England may cut interest rates in December.
The Office for National Statistics (ONS) confirmed that this is the highest the jobless rate has been since early 2021. The rise to 5% was also more significant than many economists had predicted. Most analysts had forecast a rate of 4.9% ahead of the government’s upcoming Budget announcement on November 26. The report also showed that average wage growth slowed down to 4.6% in the third quarter, a slight decrease from 4.7% in the prior period.
Rising Unemployment Fuels Hopes for Interest Rate Cut
While a higher unemployment figure presents a challenge for the government, it has led to growing speculation about a potential interest rate cut. The Bank of England’s Monetary Policy Committee is set to hold its next meeting on December 18, where it will decide on its next move.
Financial experts have noted that the likelihood of a rate cut has increased following the release of these employment numbers. However, caution remains. Danni Hewson, a financial analyst at AJ Bell, mentioned that while expectations have risen, no one is certain until the government’s full budget details are made public. The UK’s central bank has previously indicated that it expects the unemployment rate to hover around the 5% level for the next few years.
Liz McKeown, a director at the ONS, commented that the latest data points to a cooling labor market. She highlighted that the unemployment rate has reached a post-pandemic high, although the number of job vacancies has remained relatively stable. When excluding the unusual data from the COVID-19 period, this is the highest unemployment rate the UK has experienced since August 2016. The ONS has also advised that these figures should be interpreted with care as it continues to improve its data collection methods.
Political Reactions to the Economic Data
The government’s Work and Pension Secretary, Pat McFadden, acknowledged that the job market is facing challenges but maintained that the British economy is still creating jobs. He did, however, express concern over the increase in the number of young people who are not currently employed or in training programs.
Meanwhile, the opposition’s shadow work and pensions secretary, Helen Whately, attributed the rise in unemployment to the government’s policies. She argued that these policies have led to higher taxes on jobs, increased red tape for businesses, and damaged overall economic confidence.
Preliminary estimates also indicate a drop in the number of people on company payrolls, which fell by 180,000 in the year leading up to October. This 0.6% decline was steeper than many forecasters had anticipated.
A Deeper Dive into the UK Jobs Market
The ONS data shows that nearly 1.7 million people are currently receiving unemployment benefits, a slight reduction compared to a year ago. In a small positive sign, job vacancies increased by 2,000 to 723,000 between August and October, marking the first rise in over three years. However, this number is still significantly below the peak of 1.3 million vacancies seen in the spring of 2022.
The report also highlighted a notable gap in wage growth between the public and private sectors. Public sector pay grew by 6.6%, whereas private sector pay increased by 4.2%. Yael Selfin, chief economist at KPMG UK, suggested that the rapid growth in public sector pay may be nearing its end due to government budget constraints. She also predicted that private sector wage growth will likely slow further as more people enter the job market, which reduces the negotiating power of employees.
With the government’s budget announcement just two weeks away, many businesses are reportedly pausing their hiring plans. Richard Carter of Quilter Cheviot noted that companies are likely hesitant to make new commitments until they have clarity on future costs. Tina McKenzie from the Federation of Small Businesses criticized what she called the government’s “complacent attitude to jobs and businesses,” urging for new policies that support job creation and economic growth.
