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The UK unemployment rate rose to 5.1 per cent and wage growth slowed in the three months to October as employers held off hiring ahead of the government’s second tax-raising Budget.
Tuesday’s figure from the Office for National Statistics was up from 5 per cent in the three months to September — in line with analysts’ expectations and the highest since January 2021.
Separate figures from tax records showed that payroll employment fell by 149,000, or 0.5 per cent, in the year to October, the ONS said. Provisional figures pointed to a further fall of 38,000, or 0.1 per cent, between October and November, although these are likely to be revised.
The weakness in the jobs market reflects the uncertainty that weighed on the economy in the run-up to the November 26 Budget, as businesses delayed decisions while waiting for clarity on government tax policy.
Separate figures released on Tuesday showed UK business activity regained momentum in December as uncertainty linked to the Budget dissipated.
Rachel Reeves has come under fire for leaks over possible tax rises in the months that preceded the Budget, which employers said had a chilling effect on business and consumer confidence. The chancellor has said she did not authorise any leaks.
Tuesday’s figures will also cement expectations that the Bank of England is set to cut interest rates by another quarter point to 3.75 per cent on Thursday, as its Monetary Policy Committee becomes more confident that weak economic growth is bearing down on inflation.
Annual growth in average private sector weekly earnings — the measure most closely watched by rate-setters — slowed to 3.9 per cent in the three months to October, down from 4.2 per cent the previous month.
Ashley Webb, at consultancy Capital Economics, said this strengthened expectations that the BoE would “deliver a present just in time for Christmas” by lowering borrowing costs, provided there was no unwelcome surprise in inflation data for November due on Wednesday.
However, wage growth has not fallen as far as analysts had expected and some say this will make it difficult for the MPC to cut interest rates further next year.
Total pay growth “remains too fast for the MPC to relax”, said Thomas Pugh, economist at audit firm RSM UK.
Following the figures, traders continued to bet on a rate cut this week, with a more than 90 per cent chance implied by the swaps market.
The data drew a muted reaction from investors, with the pound little changed against the dollar at $1.340. The yield on the two-year gilt, which is sensitive to changes in interest rate expectations, edged up 0.01 percentage points to 3.76 per cent. Yields move inversely to prices.
The official figures showed that young people have been hit especially hard by the slowdown in hiring, with the jobless rate for 18- to 24-year-olds climbing to 13.4 per cent in the three months to October.
Pat McFadden, work and pensions secretary, said the increase showed “the scale of the challenge we’ve inherited” and justified recent decisions to subsidise 50,000 more apprenticeships and 350,000 work placements for young people.
Andrew Griffith, Conservative shadow business secretary, hit out at the government, saying it does “not understand business and ordinary people are paying the price for their incompetence”.
It comes as UK private sector activity rose more than expected in December following the Budget, according to a key survey.
The S&P Global Flash UK PMI composite output index, a closely watched measure of the health of the manufacturing and services sectors, increased to 52.1 in December from 51.2 in the previous month. The figure was above the 51.6 forecast by economists polled by Reuters and higher than the 50 mark, indicating a majority of businesses reporting expanding activity.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said that businesses were “buoyed in part by the post-Budget lifting of uncertainty”.
He added that it was “a big relief” that business confidence has not slumped in a repeat of last year’s post-Budget gloom. “Instead, companies have ended the year on a slightly more optimistic note amid signs of improving demand now that some of the uncertainty created by the Budget has cleared,” he said.
Additional reporting by Emily Herbert in London
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