The UK’s unemployment rate has risen to 4.3% in the three months to September, up from 4% in the previous quarter, signalling a slowdown in the labour market that may affect economic recovery efforts.
Alongside this, wage growth is beginning to stabilise, with average earnings, excluding bonuses, increasing at a rate of 4.8%—the slowest rise in over two years. This data, released by the Office for National Statistics (ONS), provides insight into current labour trends, highlighting both rising unemployment and stabilising wages as factors that may influence upcoming interest rate decisions by the Bank of England.
Rising Unemployment Amid Economic Uncertainty
The increase in unemployment to 4.3% reflects shifts in the labour market, with industries such as retail and hospitality experiencing particular strain. The economic challenges posed by ongoing inflation and higher operating costs have prompted businesses to take cautious hiring approaches, affecting job availability. Many sectors face significant headwinds, especially as new economic policies like increased National Insurance contributions (NICs) begin to weigh on employer expenses. These costs are expected to impact hiring and wage-setting decisions, leading businesses to reduce hiring intentions as they navigate these additional financial pressures.
The ONS has noted that while employment data offers crucial insights, response rates to the Labour Force Survey have been lower than usual, prompting questions around data accuracy. Some economists have raised concerns about these statistics’ reliability, with Pantheon Macroeconomics’ Rob Wood noting that the current data set must be interpreted with caution. Nonetheless, the figures suggest a cooling of the labour market, a trend that could continue into the coming months as businesses grapple with economic challenges.
Slowing Wage Growth and Inflationary Pressures
Average earnings growth excluding bonuses has slowed, showing a 4.8% increase—representing the lowest level in over two years. This deceleration in wage growth signals a shift in the economic landscape, as inflation pressures appear to moderate wage expectations. Higher interest rates have increased the cost of borrowing, which has further impacted consumer spending and business investment, slowing down economic activity and consequently wage growth.
Despite the moderation, wage growth remains outpaced by inflation, which erodes real earnings for households across the UK. Consumers have seen a sustained squeeze on purchasing power as costs for essentials, including groceries and energy, remain high. The Bank of England will closely examine wage data as it considers future adjustments to interest rates, balancing the need to control inflation with the risk of stifling economic growth.
Impact on Monetary Policy and the Broader Economy
As the labour market shows signs of cooling, these trends are likely to influence the Bank of England’s Monetary Policy Committee as it assesses whether further adjustments to interest rates are necessary. With the current unemployment rise and slower wage growth, some experts predict that the Bank may consider halting rate hikes to avoid placing additional strain on businesses and households already affected by rising costs. According to data reviewed by Financial Times, there is growing speculation that the Bank will proceed cautiously, aiming to avoid a contraction in employment that could undermine broader economic stability.
The Bank faces the difficult task of balancing inflation control with maintaining a supportive environment for the job market. While inflation remains a primary concern, the increasing unemployment rate suggests that further rate hikes could exacerbate job losses. The slowing pace of wage growth will also play into these considerations, potentially easing pressure on the Bank to continue its current monetary policy trajectory.
Outlook for Employment and Business Sentiment
Looking forward, many businesses, especially in cost-sensitive sectors, are likely to exercise caution in their hiring strategies. The looming effects of inflation, NICs increases, and potentially higher wages are combining to make the labour market less flexible, impacting hiring sentiment across industries. The economic context is pressing companies to focus on cost management rather than growth, which may suppress job creation in the short term.
Given the current data, analysts will be closely monitoring forthcoming updates on employment trends, especially as businesses adapt to cost pressures and households face reduced purchasing power. While recent ONS data provides a mixed picture of the UK’s labour market, the full impact of economic policies and inflationary trends may not yet be fully visible, leaving room for further shifts in the months ahead.
