UK (Parliament Politics Magazine) – UK unemployment climbs to 5%, the highest since 2021, as payrolls fall and the labour market slows ahead of government budget plans.
As reported by The Guardian, official data show UK unemployment has risen above forecasts to a four-year high, amid a weakening jobs market ahead of Chancellor Rachel Reeves’s budget.
What did ONS figures show about UK unemployment ahead of the Budget?
Office for National Statistics figures reveal UK unemployment rose to 5% in the three months ending September, up from 4.8%, as the autumn budget approaches.
It said,
“In the latest quarter (July to September 2025), those unemployed for up to 6 months or over 12 months increased but the number of those unemployed between 6 and 12 months decreased.”
City economists had expected unemployment to rise to 4.9%, with the official headline rate last higher in Q1 2021, at the peak of the Covid pandemic.
ONS data come from its widely criticised Labour Force Survey, which has suffered collapsing response rates, with experts warning policymakers may be “flying blind” on unreliable data.
Data from HMRC released on Tuesday showed the number of employees on company payrolls dropped by 32,000 in October compared with September.
The ONS reported that total job vacancies were broadly unchanged, but down 99,000 year-on-year, with the largest employment falls in wholesale, retail, hospitality, and IT sectors.
What did Liz McKeown say about the UK labour market?
Referring to the figures, ONS director of economic statistics Liz McKeown said,
“Taken together these figures point to a weakening labour market. The number of people on payroll is falling, with revised tax data now showing falls in most of the last 12 months. Meanwhile the unemployment rate is up in the latest quarter to a post pandemic high. The number of job vacancies, however, remains broadly unchanged.”
She added,
“Wage growth in the private sector slowed further, but we continue to see stronger public sector pay growth, reflecting some pay rises being awarded earlier than they were last year.”
What did experts say about the UK payroll cuts and rising unemployment?
Isaac Stell, investment manager at tax advisory service Wealth Club, described unemployment figures as a “self-inflicted wound.”
He said,
“There can be no doubt that the fiscal levers pulled by the Government and the Chancellor have significantly contributed to these figures and the responsibility lies at their feet.”
Mr Stell added,
“With speculation around the Budget reaching fever pitch, businesses have postponed hiring and are less likely to commit to any form of investment until they know where the economic land lies. The stakes couldn’t be higher for the government and with further tax rises guaranteed at the budget, the fiscal landscape for employers and employees looks to be on ever shakier ground.”
Ashley Webb, UK economist at Capital Economics, attributes recent workforce cuts to the increase in employer national insurance contributions.
She added,
“The 32,000 fall in payroll employment in October was the eleventh monthly decline over the past year and suggests that businesses continued to trim headcounts after the Chancellor announced the rises in payroll taxes and the minimum wage in last year’s October Budget.”
Thomas Pugh, chief economist at RSM UK, warns that issues at the Office for National Statistics make today’s data somewhat unreliable.
He said,
“A rise in the unemployment rate to 5.0% in September, the highest level since the pandemic, and a further slowing in private sector pay growth throws the door wide open to a December rate cut – as long as the budget is as deflationary as the Chancellor hinted at last week.”
Mr Pugh added,
“Overall, the labour market appears to still be weakening with the unemployment rate ticking up and employment falling on both the LFS and payrolls measures. Admittedly, the unemployment rate is being driven up by an erratic looking jump in unemployment on the single month figures. Even though the ONS has made improvements to the Labour Force Survey, which is where the official measures of employment statistics are derived from, it continues to be distorted by a low response rate making it less reliable than in the past.”
Richard Carter, head of fixed interest research at Quilter Cheviot, said the Bank of England governor could be the ‘swing voter’ who influences a rate cut.
He said,
“An early Christmas present could come in the form of an interest rate cut from the Bank of England following a rise in unemployment and a softening in wage growth. The monetary policy committee had a tight 5-4 split on whether to hold or cut rates at last week’s meeting, with Andrew Bailey’s deciding vote erring on the side of caution.”
Mr Carter stated,
“Today’s figures from the Office for National Statistics show wage growth pressures, albeit still relatively high, are slowly easing. Annual growth in regular earnings excluding bonuses saw a decline to 4.6% compared to 4.7% last month, and total earnings including bonuses fell to 4.8% compared to 5%. Any further signs of easing in the next labour market print could sway a few more on the committee to cut on the 18th December.”
Suren Thiru, economics director at ICAEW, said the jump in unemployment to 5% and slowing wage growth have increased the chances of a Bank of England rate cut.
He said,
“These figures suggest 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.”
Mr Thiru stated,
“This weakening in wage growth is likely to accelerate over the winter as the downward pressure from an ailing economy, significant staffing costs and more job losses increasingly restrains pay awards.”
He added,
“The jobs market could bear the brunt of Budget tax rises as weaker customer demand, amid a possible income tax hike and increasing costs on business, may mean higher unemployment than the Bank of England currently predicts. These underwhelming figures add credence to the more dovish tilt to last week’s policy decision and the current rate at which the labour market is loosening notably increases the chances of a December interest rate cut.”
Sanjay Raja. Deutsche Bank’s chief UK economist said,
“Today’s data should give the MPC more confidence to cut Bank Rate further by year-end. Labour market slack continued to widen – even surprising market expectations.”
What did Pat McFadden say about job growth?
Pat McFadden, Secretary of State for Work and Pensions, said the government is acting to get more people into work.
He stated,
“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.”
Mr McFadden said,
“We’ve introduced the most ambitious employment reforms in a generation to modernise jobcentres, expand youth hubs and tackle ill-health through stronger partnerships with employers. And this week we’re going further by launching an independent investigation that will bolster our drive to ensure all young people are earning or learning.”
He added,
“We’re backing businesses to grow and create jobs by cutting red tape, signing trade deals and securing hundreds of billions in investment, which helped make the UK the fastest growing economy in the G7 in the first half of this year.”
What did Daisy Cooper say about the latest UK employment data?
Liberal Democrat Treasury spokesperson, Daisy Cooper, said,
“Surely the writing is on the wall now for the Chancellor’s jobs tax.”
She stated,
“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.”
Ms Cooper added,
“The Government must reverse their damaging National Insurance hike at the Budget, and commit to saving the small businesses who employ millions in Britain and are at risk of collapse, if they’re to have any hope of reversing today’s concerning trend.”
How will Rachel Reeves address the £30bn public finance gap?
ONS data were released as the countdown began to the chancellor’s second budget on 26 November.
At a Downing Street event last week, Rachel Reeves signalled a series of difficult measures, expected to be only partly offset by announcements aimed at keeping Labour MPs onside, while facing a £30bn hole in public finances.
She signalled she may break Labour’s tax pledge, citing changes in global circumstances affecting income tax, national insurance, and VAT.
The chancellor’s concerns include the impact of Brexit and the US trade war.
The government is expected to focus on removing the two-child benefit cap, which could lift around 350,000 children out of poverty, according to the Child Poverty Action Group.
According to business leaders, Ms Reeves’s £25bn increase in employer national insurance and higher living wage has caused job cuts and reduced hiring, hitting part-time roles and sectors such as hospitality and retail.
When will the UK Budget be announced?
The UK Budget for 2025 will be announced on Wednesday, 26 November 2025. It will be presented by the Chancellor of the Exchequer, Rachel Reeves.
Possible tax changes expected in this budget include no increases in income tax, VAT, or employee National Insurance, but possible freezes on tax bands and increases in “sin” duties on items like gambling, tobacco, alcohol, and unhealthy foods.
The Budget may see potential reforms in areas such as inheritance tax, property taxes, capital gains tax, and pensions, with impacts on various taxpayers like pensioners, landlords, and investors.
