The UK labour market weakened further in the three months to October, with unemployment climbing to 5.1% — the highest rate since early 2021 — according to the latest data from the Office for National Statistics.
The number of people out of work reached 1.83 million, while payrolled employment fell by almost 90,000 over the quarter, marking the steepest drop since the pandemic. Vacancies also edged lower, extending a steady decline seen throughout 2025 as companies slowed hiring amid uncertain growth prospects.
Average wage growth cooled to 4.6% in the three months to October, down from above 6% earlier in the year. Regular pay growth excluding bonuses eased to 3.9%, its lowest pace in five years. Public sector pay continued to rise faster, reflecting earlier wage settlements, while private sector momentum faded.
The figures come as the Bank of England weighs whether to begin cutting interest rates in early 2026. Analysts have increasingly priced in a quarter-point reduction from the current 4% base rate at the Monetary Policy Committee’s next meeting, citing a softer labour market and a mild contraction in GDP in October.
Naomi Clayton, Chief Executive at the Institute for Employment Studies, said the data underline how much the labour market has weakened. “The unemployment rate has increased to the highest rate in four years, and unemployment rates for men match peak rates during the pandemic,” she said. “Payrolled employment has fallen by nearly 90,000 over the last quarter — the largest fall since the pandemic — while vacancy numbers have decreased slightly, which means more people are competing for fewer jobs. We need to boost employer confidence and expand support for the 2.1 million people who are outside the labour force but want to work.”
Clayton added that the youth unemployment rate “is now higher than it was during the pandemic and is at its highest rate in ten years.” As the government reviews the causes of record unemployment and inactivity among 16- to 24-year-olds, she said, it should “continue to build on the Youth Guarantee to ensure that all young people can access the support they need.”
Economists said the slowdown was consistent with a gradual cooling in the post-inflation recovery. Weaker pay growth, they added, may ease inflationary pressures and give the Bank of England scope to act.
At the same time, job losses and higher inactivity among younger workers are testing government initiatives designed to expand the workforce and raise productivity.
While inflation has continued to ease toward the central bank’s 2% target, policymakers are expected to signal caution, emphasising that wage growth remains above pre-pandemic levels. The Bank’s next rate decision is due in February.
