Jobless Rate Rises to Highest Since Early 2021
The UK unemployment rate has climbed to 5% in the three months to September, official figures reveal, signalling a slowdown in the labour market
This is the highest rate recorded since the period between December 2020 and February 2021, according to the Office for National Statistics (ONS), raising expectations of a potential Bank of England interest rate cut in December.
The increase exceeded forecasts, surpassing the 4.9% rate predicted by many economists ahead of the Budget on 26 November.
Average wages grew by 4.6% in the third quarter, slightly down from 4.7% in the three months to August.
Interest Rate Speculation Intensifies
Although rising unemployment is bad news for the government, it has prompted speculation that the Bank of England may reduce rates when the Monetary Policy Committee meets on 18 December.
Danni Hewson, head of financial analysis at AJ Bell, said expectations for a cut have grown sharply, adding: “Until we see all the chancellor’s workings in black and white, no one is taking anything for granted.”
The Bank of England predicts unemployment will remain near 5% in the coming years.
ONS Highlights Labour Market Weakness
Liz McKeown, ONS director of economic statistics, said: “Taken together, these figures point to a weakening labour market.”
She added that while the unemployment rate has risen to a post-pandemic high, the number of job vacancies remains broadly unchanged.
Excluding the distorted levels seen during the Covid-19 pandemic, Tuesday’s rate is the highest recorded since August 2016.
The ONS cautioned that the data should be interpreted carefully and is taking additional steps to address concerns about data quality.
Government Response
Work and Pensions Secretary Pat McFadden acknowledged the challenges in the labour market but stressed that “the British economy is still generating jobs.”
He expressed concern over the growing number of young people not in employment, education, or training over the past five years.
Opposition Criticism
Shadow Work and Pensions Secretary Helen Whately attributed the rise in unemployment to government policy, arguing that ministers were “hiking up taxes on jobs, piling red tape on businesses, and destroying confidence in the economy.”
Daisy Cooper, Treasury spokesperson for the Liberal Democrats, added: “Everyone except Rachel Reeves seems to have woken up to the fact that forcing small businesses to pay more in tax for giving people jobs would damage job opportunities. Now the proof is staring her in the face.”
HM Treasury has been approached for comment.
Payroll Numbers Drop
Preliminary estimates show that the number of people on company payrolls fell by 180,000 in the year to October, a decline of 0.6%, surpassing expectations.
Hiring Plans Delayed
The ONS reported that nearly 1.7 million people are claiming unemployment benefits, slightly fewer than a year ago.
Job vacancies rose modestly by 2,000 to 723,000 between August and October 2025, marking the first increase in over three years, though still well below the peak of 1.3 million from March to May 2022.
Wage Growth Divergence
The figures show a gap in pay growth: public sector wages increased by 6.6%, while private sector growth was 4.2%.
Yael Selfin, chief economist at KPMG UK, said public sector pay growth is “approaching a peak,” as large increases from last year are unlikely to continue due to government budget constraints.
She added that private sector wage growth is expected to slow further, with more jobseekers weakening workers’ bargaining power.
Businesses Holding Back
Richard Carter, head of fixed interest research at Quilter Cheviot, said many firms have “shelved any major hiring plans” ahead of the Budget.
“Having already faced a significant rise in national insurance costs earlier this year, businesses will likely be cautious until they know whether further costs are coming,” he added.
Small Businesses Under Pressure
Tina McKenzie, policy chair of the Federation of Small Businesses, said the rise in unemployment and decline in payroll numbers reflects the government’s “complacent attitude to jobs and businesses.”
She warned that small firms have been hindered from hiring by “ever increasing regulation, litigation and tax,” urging Rachel Reeves to take decisive action to support employment and growth.
