UK Unemployment Rises to 5%
The UK's unemployment rate has hit 5% for the three months leading up to September, the highest level since early 2021. According to the latest data from the Office for National Statistics (ONS), the increase was sharper than expected, with economists predicting a rise to just 4.9%.
While the rise in unemployment reflects broader economic issues, it's also a reminder of the pressure facing businesses in a climate of high inflation, rising borrowing costs, and increased taxes. A key issue is the continued strain from April's increase in national insurance contributions, which many believe has discouraged hiring and led to job cuts in certain sectors, particularly in retail, hospitality, and food services.
ONS Director of Economic Statistics, Liz McKeown, commented: "Taken together, these figures point to a weakening labour market." McKeown noted that while the unemployment rate has reached a post-pandemic high, the number of job vacancies has remained relatively stable.
Private sector wages continued to slow, with growth down to 4.2% from the previous quarter's 4.7%. Meanwhile, public sector wage growth remained stronger, at 6.6%, reflecting the pay rises awarded last year. However, economists like Yael Selfin, the Chief Economist at KPMG UK, suggest that public sector pay growth could plateau, as further big raises are unlikely due to government budget constraints.
As the government gears up for the November budget, the rise in unemployment is stirring up debate over the effectiveness of recent economic policies. Chancellor Rachel Reeves, who has faced criticism from business leaders, is expected to announce more tax hikes to address the nation's £30bn public finance shortfall.
Small business advocates are particularly concerned, with Tina McKenzie of the Federation of Small Businesses blaming regulations, litigation, and tax increases for holding back job creation. Meanwhile, Labour's Pat McFadden pointed to the government's ongoing efforts to "Get Britain Working," highlighting recent employment reforms and new initiatives aimed at supporting job creation.
The ONS data shows that there were 180,000 fewer people on company payrolls in the year to October, a drop of 0.6%. This follows a broader trend of declining payroll numbers, although the pace of job losses has slowed since earlier this year. As businesses grapple with an uncertain economic outlook, many are putting hiring plans on hold, awaiting further clarity on government policies.
Looking ahead, the Bank of England may use the latest data to justify a potential interest rate cut, especially if inflation continues to ease. The economic environment, however, remains tense, with many forecasting further challenges for the labour market in the coming months.
