UK unemployment at its highest since pandemic as jobs market cools

[LONDON] UK unemployment rose more than expected, further evidence of a cooling labour market that prompted several Bank of England (BOE) officials to call for an interest-rate cut last week. 

The jobless rate climbed to 5 per cent in the three months through September, up from 4.8 per cent the month before. It was the highest since early 2021, when the economy was under Covid restrictions.

Separate tax-based data showed the number of employees on payroll fell 32,000 in October, following a downwardly revised 32,000 in September.

The pound extended declines after the data, falling as much as 0.4 per cent to US$1.3121.

Private-sector pay rose an annual 4.2 per cent in the three months through September, down from 4.4 per cent in August, the Office for National Statistics (ONS) said on Tuesday (Nov 11).

It was the weakest reading since early 2021, and in line with the median expectation of economists. 

The report will provide some reassurance to BOE officials that disinflation is under way.

Policymakers voted to hold interest rates at 4 per cent last week in a tight five-to-four decision that appeared to set the stage for a reduction in December.

Governor Andrew Bailey, who voted to keep rates unchanged, signalled he could be persuaded to cut rates in December if data in coming weeks confirm his view that inflationary pressures are easing.

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Citing a weakening labour market, he said downside risks were more likely to materialise than upside risks.

“Taken together, these figures point to a weakening labour market,” said ONS director of economic statistics Liz McKeown.

Before today’s figures, market were pricing in a 70 per cent chance of a further cut by the end of the year.

The Nov 26 Budget will be crucial, when Chancellor of the Exchequer Rachel Reeves is expected to raise taxes on households to fill a fresh hole in the public finances.

That could hit growth and bear down on inflation, unlike her first Budget, when hikes in employer payroll taxes prompted many firms to raise prices. 

Rising unemployment is likely to provide ammunition to doves like deputy BOE governors Dave Ramsden and Sarah Breeden, who favoured a cut at the last meeting.

The fall in payrolls last month brings the number of employees lost since Reeves’ first tax-raising Budget in October last year to 180,000.

The number of vacancies in the three months to October was up 2,000 from the previous quarter, but still below their pre-pandemic level.

The number of unemployed people per vacancy – a key measure of slack – was 2.5 in July to September 2025, an increase from the last quarter and the highest since 2015.

However, others, including chief BOE economist Huw Pill, believe there is more to do to stop inflation from getting stuck above the 2 per cent target. Bailey said he is taking a wait-and-see approach.

The jobs report is the first in a series of data over the next few weeks that will determine whether the BOE will cut interest rates at its last meeting of the year on Dec 18.

Next in line are the gross domestic product figures out on Nov 13, which will provide the first snapshot of the economy in the third quarter.

Meanwhile, Labour’s first Budget is still weighing on the jobs market and fuelling pay pressures.

Almost half of the firms surveyed by the BOE said they decreased employment in response to the government’s increase in employment taxes, with only 17 per cent turning to lowering wages.

At the same time, businesses expect to increase wages in the year-ahead by 3.7 per cent in the three months to October, an increase from the month before. BLOOMBERG