UK Unemployment Rate Climbs to Highest Level Since Pandemic

Unemployment in the United Kingdom has reached its highest rate since the third national pandemic lockdown, according to recently released official data. Figures from the Office for National Statistics revealed that the unemployment rate stood at 5 per cent in the three months to September, an increase from 4.8 per cent in the previous quarter. This marks the most significant increase in joblessness since the period ending February 2021.

Statistics from HM Revenue and Customs indicated a reduction of 180,000 payrolled employees over the last year, coinciding with the aftermath of Chancellor Rachel Reeves’s first budget. The budget, introduced in October last year, included a substantial £25 billion rise in employer national insurance contributions. A decline in payroll numbers has not been seen on this scale since the pandemic.

Liz McKeown, director of economic statistics at the ONS, stated that the figures indicate a weakening labour market at a time when the Chancellor is poised to deliver her second budget. Anticipation of increased taxation, possibly by as much as £30 billion and potentially involving an income tax rise, has contributed to a freeze in hiring activity. Economic experts note that employers are holding back on recruitment, pending further details from the forthcoming budget.

The latest ONS report noted a slowdown in wage growth to 4.6 per cent in the most recent quarter, the smallest rise since spring 2022. The private sector experienced wage growth of 4.2 per cent, the lowest since the end of 2021, while public sector wage growth accelerated by 6.6 per cent, the fastest rise in two years.

Monetary policymakers at the Bank of England closely monitor wage trends to inform interest rate decisions. The muted increase in private sector wages marginally improves the prospects of a rate cut at the next Bank of England meeting, given that borrowing costs currently stand at 4 per cent. Following the labour market data release, the pound edged down against the dollar and UK government borrowing costs dipped, suggesting that financial markets are anticipating a possible rate reduction. The FTSE 100 index rose by just under 1 per cent.

Ashley Webb, UK economist at Capital Economics, stated that continued weakness in the labour market and cooling pay growth could support the argument for an earlier rate cut by the central bank. Current government policy is focused on removing regulatory barriers, expanding trade, and securing investment, which officials claim has contributed to the UK’s recent ranking as the fastest-growing major economy in the G7 for the first half of the year. However, the reliability of the ONS labour figures has come under scrutiny due to declining survey response rates, an issue that could affect the precision of reported trends.