The UK labour market showed signs of improvement with unemployment declining to 4.7% in the three months to August, according to the Office for National Statistics. This represented a decrease from the previously reported 4.9% rate and confounded analyst expectations that had predicted an increase to 5%. The jobless figures represent a positive development as Chancellor John Healey prepares to deliver his first budget next week.
Payroll employment metrics also demonstrated gains, with the number of payrolled employees increasing by 13,000 between August and September to reach 30.3 million. Youth unemployment similarly improved, declining by 28,000 on the quarter to 715,000 individuals aged 16 to 24. However, experts cautioned against interpreting these improvements as indicating broad-based economic strength. Job vacancies continued their downward trajectory, falling by 21,000 in the three months to September to 691,000, marking the lowest level since 2021.
Wage growth data presented a mixed picture for policymakers at the Bank of England. Excluding bonuses, average pay growth increased to 3.7% from 3.6%, though when bonuses were included the rate declined to 3.9%, reflecting subdued bonus payments. Pay growth continues to outpace inflation, which stood at 3.1% in August with expectations for a rise to 3.4% when September data becomes available. Market participants widely anticipate interest rate increases at the central bank’s next monetary policy meeting in response to inflation concerns.
Economists offered varied interpretations of the labour market conditions. The Work Foundation described the employment figures as insufficient reason for government complacency, noting that job vacancies remained near their lowest levels outside pandemic periods. The Institute of Chartered Accountants characterised the market as operating at reduced capacity, with employers restraining hiring and wage increases amid cost pressures and policy uncertainty. Financial markets have priced in expectations of interest rates rising to between 4.75% and 5% by mid-year, though some analysts suggested the central bank may limit increases to 4.25%.
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