UK unemployment hits 5 per cent as labour market cools

The UK’s unemployment rate rose to 5 per cent in the three months to September — its highest level since late 2021 — according to new figures from the Office for National Statistics. The increase, up from 4.8 per cent in the previous quarter, points to a continued cooling in the labour market after more than a year of slowing payroll growth.

The number of unemployed people reached 1.8 million, while HMRC data showed payrolled employment falling for 11 of the past 12 months. Wage growth also eased, with average weekly earnings rising by 4.8 per cent, down from summer highs. Vacancies remained broadly unchanged on the quarter but were around 99,000 lower than a year earlier, indicating that demand for labour continues to soften.

Economists say the data mark a turning point after three years of labour scarcity that followed the pandemic and Brexit-related supply constraints. Early market reaction saw investors increase expectations of a December interest-rate cut by the Bank of England, reflecting a view that the cooling jobs market will help ease inflationary pressure.

Naomi Clayton, Chief Executive at the Institute for Employment Studies, said the figures underline a structural slowdown, noting that “the last two months have seen the most significant falls in payrolled employment in the last year, which has fallen for 11 of the last 12 months.”

She added that “early estimates suggest that vacancies have increased slightly but remain well below the pre-pandemic peak,” and that the unemployment rate has risen “to the highest rate in four years.” Clayton said that “with weak hiring and rising unemployment, the upcoming Autumn Budget must focus on boosting growth and expanding support for the 2.1 million people who are outside the labour force but want to work,” including accelerating the rollout of the Get Britain Working reforms and strengthening reskilling pathways.

Youth unemployment emerged as a particular concern. James Cockett, senior labour-market economist at the CIPD, the professional body for HR and people development, said young people “have been particularly hard hit by the surge in unemployment highlighted in today’s statistics, suggesting employers are shying away from hiring those with more development needs because of the additional costs involved.”

He added that “the percentage of 18–24-year-olds unemployed for over 12 months is the highest it’s been in a decade.”

Cockett welcomed the government’s inquiry into the number of young people not in education, training or employment, but cautioned that “any actions resulting from this may be too late for many, as time outside of the labour market early in working lives can have long-term negative effects on future employment prospects and earnings.” He urged ministers to “avoid adding further costs on employers in the Budget later this month” and called for “an Apprenticeship Guarantee for 16- to 24-year-olds” to give young people “the best possible start to their working lives.”

With the Autumn Budget due on 26 November, policymakers face a delicate balance: easing cost pressures on employers without stalling progress on inflation. The data mark a shift from scarcity to slack — and how government responds may define the next phase of the UK’s recovery.