UK Unemployment Rises to 5%, the Highest Level in Four Years

Economic

Summary:

ONS says jobs market worsening before budget, as HMRC reports falling number of workers on firms’ payrolls

Unemployment in the UK has risen by more than expected to the highest level in four years, official figures show, amid a worsening slowdown in the jobs market before Rachel Reeves’s autumn budget.

With under three weeks to go before the chancellor’s tax and spending statement, figures from the Office for National Statistics (ONS) show the headline unemployment rate rose to 5.0% in the three months to the end of September, up from 4.8% in the previous quarter.

City economists had forecast an increase to 4.9%. Representing an increase in unemployment to 1.8 million, the official jobless rate was last higher in January 2021, during the height of the Covid pandemic.

Suren Thiru, the economics director at the Institute of Chartered Accountants in England and Wales, said: “These figures suggest that the UK’s labour market is suffering from pre-budget jitters, as businesses already weakened by April’s rise in national insurance look to cut recruitment further in anticipation of another difficult budget.”

UK Unemployment Rises to 5%, the Highest Level in Four Years_1

Concerns over the strength of the jobs market prompted City investors to bet that the Bank of England would be more likely to cut interest rates at its next policy meeting in December. The pound fell by 0.3% against the US dollar, while the odds of a post-budget cut in borrowing costs increased from about 60% to 75%.

Threadneedle Street kept rates on hold last week, but opened the door to a cut from as early as next month after signalling that inflation had peaked amid a slowdown in the economy.

Reeves is expected to raise taxes in the budget on 26 November to plug a shortfall in the public finances of up to £30bn. However, the chancellor has been warned that doing so could hit jobs and growth in a repeat of her first autumn budget.

Business leaders have warned Reeves’s £25bn rise in employer national insurance contributions and increase in the national living wage from April has led to job cuts and sapped hiring demand, hitting part-time employment and jobs in the hospitality, leisure and retail sectors in particular.

Martin Beck, the chief economist at WPI Strategy, said: “The prospect of new tax rises in the upcoming budget poses further risks to employment, particularly if the chancellor again looks to raise taxes on businesses. But this time, Rachel Reeves is more likely to target earners rather than employers.”

Ministers have grown increasingly alarmed over the jobs market slowdown – including a dramatic increase in youth unemployment, amid a jump in the number of young people who are not in employment, education or training (Neet) to almost 1 million, the highest level in a decade.

The government this week appointed the former Labour health secretary Alan Milburn to lead an independent review of the role of mental health issues and disability in youth unemployment.

A separate review by the former boss of John Lewis, Charlie Mayfield, warned last week that young adults were one of the key cohorts affected by an “economic inactivity crisis” hitting Britain.

The Bank warned last week that unemployment could push further above 5% next year, in a development with potential to cool inflationary pressures by making it harder for workers to bargain for higher wages and for businesses to raise their prices.

While the ONS’s figures are based on its widely criticised labour force survey, which has suffered from collapsing response rates, separate data suggests the jobs market has slowed sharply.

Figures from HMRC published on Tuesday showed the number of workers on company payrolls fell by 180,000 in the year to October, and by 32,000 compared with September.

Job vacancies were broadly flat in the three months to October, but the figure was down by 99,000 from a year earlier. Over the past year, the biggest falls in payrolled employment were in the wholesale and retail, accommodation and food services, and IT sectors.

Highlighting the worsening slowdown in the jobs market, annual growth in average weekly earnings dropped by more than expected to 4.8%. City economists had forecast an unchanged reading of 5%.

The secretary of state for work and pensions, 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.

“We’ve introduced the most ambitious employment reforms in a generation to modernise job centres, expand youth hubs and tackle ill-health through stronger partnerships with employers.”

Source: Theguardian

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UK Unemployment Rises to 5%, the Highest Level in Four Years

Source: Theguardian

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