Unemployment in the United Kingdom has climbed to its highest level in four years, according to the latest data from the Office for National Statistics (ONS), as the jobs market weakens ahead of Chancellor Rachel Reeves’s autumn budget.
Figures show the unemployment rate rose to 5.0% in the three months to the end of September, up from 4.8% in the previous quarter. This marks an increase in the number of jobless people to 1.8 million, the highest level since January 2021, when the Covid-19 pandemic heavily disrupted the economy. City economists had forecast a smaller rise to 4.9%.
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said the figures indicate that the UK’s labour market is “suffering from pre-budget jitters, as businesses already weakened by April’s rise in national insurance look to cut recruitment further in anticipation of another difficult budget.”
The data raises concerns about the health of the jobs market and could prompt the Bank of England to consider an interest rate cut as early as December. While the central bank held rates steady last week, it signalled that borrowing costs could be reduced soon as inflation continues to ease and the economy slows.
The Bank has forecast that unemployment could climb further above 5% next year, potentially reducing inflationary pressures by limiting wage growth and businesses’ ability to raise prices.
The ONS figures are drawn from its Labour Force Survey, which has been criticised for low response rates, leaving experts concerned that policymakers may be “flying blind” when assessing the true state of the labour market.
Additional data from HMRC revealed a fall of 180,000 in the number of employees on company payrolls over the past year, with a monthly decline of 32,000 recorded in October. Employers have been hit by a combination of high taxes, persistent inflation, elevated borrowing costs, and sluggish economic growth.
Chancellor Rachel Reeves is expected to announce tax rises in the 26 November budget to fill a £30 billion hole in public finances. However, economists have warned that higher taxes could lead to further job losses and weaker growth, echoing concerns raised after her first autumn budget.
Business groups say Reeves’s earlier £25 billion increase in employer national insurance contributions and the upcoming rise in the national living wage have already reduced hiring and cut part-time jobs, especially in the hospitality, leisure, and retail sectors.
Although job vacancies remained broadly stable in the three months to October, they were 99,000 lower than a year ago. The biggest declines in payrolled employment were seen in the wholesale and retail, accommodation and food services, and IT sectors.
Martin Beck, chief economist at WPI Strategy, cautioned that “the prospect of new tax rises in the upcoming budget poses further risks to employment, particularly if the chancellor again looks to raise taxes on businesses. But this time, Rachel Reeves is more likely to target earners rather than employers.”
Average weekly earnings growth also slowed more than expected, falling to 4.8%, compared with forecasts of 5%, underlining the cooling labour market.
Work and Pensions Secretary Pat McFadden said: “Over 329,000 more people have moved into work this year already, but today’s figures are exactly why we’re stepping up our plan to get Britain working. We’ve introduced the most ambitious employment reforms in a generation to modernise job centres, expand youth hubs and tackle ill-health through stronger partnerships with employers.”
