Unemployment rose to 5% in the three months to September in another early warning sign to the Chancellor ahead of her budget.
New figures from the Office for National Statistics (ONS) show the UK jobless rate is at its highest rate since 2021.
Average wage growth was 4.6% in the third quarter, down from 4.7% over the three months to August.
“Taken together, these figures point to a weakening labour market,” said Liz McKeown, director of economic statistics for the ONS.
Job vacancies remained largely static at 723,000, a 12% decrease from 822,000 in the same period in 2024, while the number of people in employment declined, particularly across retail, construction, and professional services.
The slower labour market will prompt concern but it may encourage the Bank of England to cut interest rates at its meeting just before Christmas. The rate-setting committee this month voted by a single vote majority to keep rates on hold.
Jane Gratton, deputy director of public policy at the British Chambers of Commerce said:??“There is little comfort in this data for businesses or the government. Employers are being squeezed by sky-high employment costs, and we are beginning to see the consequences.”
Professor Joe Nellis, economic adviser at MHA, the accountancy and advisory firm, said: “It is clear that businesses are in ultra-cautious mode driven by uncertainty — uncertainty ahead of the Budget, ahead of the Employment Rights Bill, and around the future of work in an AI-driven world.
“For the government, the timing is awkward. The figures land just two weeks before the Autumn Budget, and they sharpen the fiscal dilemma facing the Chancellor. The softening labour data will amplify calls for measures that support job creation, retraining, and business investment to prevent the slowdown from deepening.”
In the three months to September 2025, the number of payrolled employees also fell by 109,000 (0.4%) over a year.
The ONS data also shows nearly 1.7m people are claiming unemployment benefits, a slight decrease on the figure from a year ago.
Responding to the latest statistics, Work and Pensions Secretary Pat McFadden said: “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.”
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