The Office for National Statistics (ONS) released a report today revealing that unemployment in the UK is estimated to have risen to 4.3% in the three months to September, with nearly 1.5 million people out of work.

With Chancellor Rachel Reeves’ Budget expected to increase taxes by £40 billion and understandable apprehension around spiralling employment costs, the latest unemployment rate marked a 0.3 percentage point increase from August’s reading of 4.0% and was also higher than market estimates of 4.1%.

Interestingly, the current 4.3% unemployment rate matches the Bank of England’s (BoE) projection as far out as Q4 2026. Projections for Q4 24 and Q4 25 are 4.2% and 4.1%, respectively. Consequently, today’s unemployment number was a remarkably high print.

Wages Remain Sticky

On the wages front, pay remained strong and sticky, likely fuelling the case that the BoE will keep the Bank Rate on hold at December’s meeting. Both regular pay and pay which includes bonuses, increased more than expected in September (3M/YY). However, regular pay eased to 4.8% (versus the 4.7% median estimate), marking its lowest level since July 2022 and was down from 4.9% in August. Including bonuses, pay increased 4.3% (versus the 3.9% median estimate), up from 3.8% in August and was the first acceleration in pay growth since the three months to February this year.

UK businesses also cut back on hiring as the number of job vacancies took another hit, dropping to its lowest levels since the three months to May 2021. The ONS commented: ‘The estimated number of vacancies in the UK decreased in August to October 2024, by 35,000 on the quarter to 831,000. Vacancies decreased on the quarter for the 28th consecutive period but are still above pre-coronavirus (COVID-19) pandemic levels’.

Cooling Jobs Market

While the jobs market is cooling, given increased unemployment, easing regular pay, lower vacancies, and easing employment growth in the three months to September (219,000 versus 373,000 in August), we must remember that the ONS has explicitly warned that the jobs data remains questionable: ‘These are official statistics in development and we advise caution when using the data. Ongoing challenges with response rates and levels mean that LFS-based labour market statistics will be badged as official statistics in development until further review’.

This morning’s data follows the BoE reducing its Bank Rate by 25 basis points (bps) last week, a move bringing the overnight rate to 4.75%. You may also recall that the BoE does not project another rate cut this year and markets echo a similar picture, currently assigning an 18% probability of another 25bp cut in December. Of relevance, BoE Chief Economist Huw Pill noted that there is still work to be done on underlying domestic inflation pressures, and highlighted that today’s jobs report shows pay growth remains elevated and that further rate cuts are likely to be gradual.

Understandably, markets reacted modestly to the jobs report. The British pound (GBP) immediately fell versus the US dollar (USD), though subsequent selling was cautious. Overall, the GBP/USD currency pair is now trading around pre-announcement levels but remains lower on the day, down 0.5%. As of writing, the FTSE 100 is also down 0.5%.

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