Official figures released Tuesday point to increased fragility in the UK labour market as job numbers fell and private sector wage growth lost momentum in the lead-up to last month’s budget presentation by Finance Minister Rachel Reeves.
According to the latest data, the unemployment rate climbed to 5.1% in the three months to October from 5.0% in the previous quarter—the highest level since January 2021. The UK’s unemployment measure is based on a survey that the Office for National Statistics (ONS) is currently working to refine. Other labour market indicators within Tuesday’s release also pointed to softness.
Annual private sector pay growth, excluding bonuses, eased to 3.9% in the three months to October—the slowest rate since late 2020—down from 4.2% in the three months to September. By contrast, public sector wage growth accelerated sharply to 7.6% from 6.6%, a change the ONS said was due to this year’s pay settlements taking effect earlier than in 2024.
Combined, regular pay across the entire workforce increased by 4.6%, a slight deceleration from an upwardly revised 4.7% in the third quarter, though still ahead of the 4.5% median forecast from economists polled by Reuters.
Tax office payroll data reflected the softer tone, with a drop of 38,000 payrolled employees in November. A decline of 32,000 initially reported for October was revised to a smaller drop of 22,000.
Following release of the figures, the pound saw a brief uptick against the dollar and euro before retreating.
With the Bank of England widely expected to lower interest rates by a quarter point at its meeting on Thursday to support the cooling economy, investors are watching closely for policy signals regarding 2026. Financial markets have nearly fully priced in the anticipated move.
Looking ahead, UK inflation data due Wednesday is forecast to show consumer price growth cooling to 3.5% in November from 3.6% in October, still running well above the BoE’s 2% target.
