UK unemployment rises as wage growth slows and retail jobs decline

The UK’s unemployment rate increased to 5.1 percent in the three months to October, reaching its highest level since January 2021. The uptick, reported by the Office for National Statistics, reflects a steady weakening of the labour market this year, with joblessness among workers aged 18 to 34 now at 8.7 percent. Graduate employment prospects have deteriorated further, compounding the contraction in the workforce.

The number of payrolled employees fell by 38,000 in November, following a decline of 22,000 the previous month. These developments have prompted economists to closely monitor the Bank of England’s response, as policymakers remain divided over a possible interest rate cut. The Bank has stated that wage growth, a primary driver of inflation, slowed from 4.9 percent to 4.7 percent in this period. When excluding bonuses, wage increases were measured at 4.6 percent, down from 4.7 percent.

Data also reveal a widening gap between public and private sector pay. Average private sector earnings edged down from 4.2 percent to 3.9 percent, their lowest since late 2020, while public sector wage growth rose to 7.6 percent. This divergence is largely attributed to earlier public sector pay settlements skewing the yearly comparison. Sectors such as finance, business services, and construction all posted private wage growth below three percent, a level consistent with the Bank’s two percent inflation target.

The pace of redundancies quickened, reaching 5.3 per thousand employees in the three months to October, the swiftest rate since February 2021. Analysts note that the private sector is experiencing a jobs recession, with employment figures outside of public and adjacent sectors falling at the fastest pace since the onset of the pandemic. Recent increases in public sector wages should not distract from the broader decline in private sector positions.

This subdued jobs market may lead the Bank of England to consider lowering its base rate from four percent to 3.75 percent. Bank Governor Andrew Bailey has signalled that upcoming inflation data will be key to any decision. Real wages remain flat overall, and with limited ability for businesses to pass on higher labour costs, the risk of additional inflation appears muted.

The retail sector has suffered particularly, with the number of UK retail jobs falling by 74,000 over the past year to 2.82 million, the lowest level on record according to the British Retail Consortium. Since 2018, the sector has contracted by over 350,000 positions, with job losses accelerating due to increases in payroll taxes and ongoing changes in employment legislation. The sector’s leaders warn that additional regulatory measures could further limit flexible job opportunities.