The economic landscape in the United Kingdom is showing clear signs of strain as new data reveals the unemployment rate has climbed to its highest level in nearly 10 years, excluding the pandemic era. Figures released Tuesday by the Office for National Statistics (ONS) paint a picture of a cooling labour market, fueling speculation that the Bank of England may soon pivot toward interest rate cuts.
In the three months ending in September, the unemployment rate for individuals aged 16 and over rose to 5.0%. This significant increase over the previous quarter is symptomatic of underlying economic challenges. Concurrently, the employment rate for those aged 16 to 64 slightly decreased to 75.0%, while the rate of economic inactivity remained largely stable at an estimated 21.0%.
Payroll Declines and Moderating Wages
One of the most concerning indicators is the continued erosion of payroll employment. The number of payrolled employees saw a substantial annual fall of 117,000, or 0.4%, between September 2024 and September 2025. Monthly data also showed a decline of 32,000 between August and September this year. Early estimates for October suggest this downward trend persists, with a further forecasted annual decline of 180,000, bringing the total number of payroll employees down to 30.3 million.
While job shedding accelerates, wage growth is beginning to temper, largely aligning with economist expectations. Regular pay, which excludes bonuses, saw an increase of 4.6% in the July to September period, slightly down from the previous 4.8% growth rate. Total pay, including bonuses, rose by 4.8%. Encouragingly for consumers, when adjusted for soaring inflation, real regular pay registered a modest 0.5% growth, providing minimal relief to household budgets.
The number of available job vacancies remained relatively flat, ticking up by just 2,000 to reach 723,000 between August and October. Labour disputes continued to disrupt productivity, with an estimated 39,000 working days lost in September alone.
Employers Exercise Caution Amid Fiscal Uncertainty
Economists widely interpret these ONS figures as strong evidence of a subdued economy, potentially giving the Bank of England the necessary data to ease monetary policy and begin lowering interest rates in the near future. However, business groups point to specific pressures hindering hiring activity.
Jane Gratton, deputy director of public policy at the British Chambers of Commerce, noted that employers are facing increasingly high operating costs. “The strain is now evident,” Gratton said, linking the cautious hiring environment to widespread anticipation ahead of the government’s comprehensive Budget scheduled for November 26.
Key Indicators of Labour Market Cooling:
- Unemployment Rate: Rises to 5.0% (highest in almost a decade, outside pandemic).
- Payroll Employees: Falls by 117,000 annually through September.
- Real Regular Pay: Modest growth of 0.5% after inflation adjustment.
- Business Concern: High employment costs driving subdued hiring and caution before the Budget.
The release of this challenging economic data places significant pressure on government ministers. They face the difficult task of balancing ambitions for sustained economic growth with a substantial fiscal gap, currently estimated at approximately £30 billion. The market context is further complicated by exchange rate guidance setting the pound at $1.32.
As unemployment climbs and economic uncertainty persists, both policymakers and consumers will be closely monitoring the Bank of England’s response, seeking interventions that can stabilize the labour market and restore growth momentum. For businesses, the focus remains on weathering high operational costs and awaiting clarity from the upcoming Budget on fiscal policy and potential support measures.