UK unemployment rate rises to 5% as jobs market weakens

The rate of UK unemployment has risen to 5% in the three months to September, showing signs the jobs market has weakened, according to new official figures.

It is the highest rate since the period covering December 2020 to February 2021, according to the Office for National Statistics (ONS) - boosting expectations of a December interest rate cut.

The increase in the unemployment rate was higher than expected, coming in above the 4.9% projected by many analysts ahead of the Budget on 26 November.

Average wage growth was 4.6% in the third quarter, down from 4.7% over the three months to August.

While the unemployment figure is bad news for the government, it has fuelled speculation of an interest rate cut when the Bank of England's Monetary Policy Committee meets on 18 December.

Danni Hewson, head of financial analysis at AJ Bell, said expectation of a decrease had risen sharply, but "until we see all the chancellor's workings in black and white, no one is taking anything for granted".

Unemployment in the coming years, according to the UK's central bank, is expected to stay close to 5%.

Liz McKeown, director of economic statistics for the ONS, said: "Taken together, these figures point to a weakening labour market.

"Meanwhile the unemployment rate is up in the latest quarter to a post pandemic high. The number of job vacancies, however, remains broadly unchanged."

Taking out the skewed levels seen during the Covid-19 years, Tuesday's unemployment rate was the highest seen since August 2016.

The ONS has said the figure should be treated with caution and it is taking additional steps to address concerns about the quality of the data.

Work and Pension Secretary, Pat McFadden acknowledged "there are challenges in the Labour market" but insisted the "British economy is still generating jobs."

He said he was "concerned by the growth" in the number of young people not in employment or training over the past five years.

Shadow work and pensions secretary Helen Whately blamed increased unemployment on government's policies, which were "hiking up taxes on jobs, piling red tape on businesses, and destroying confidence in the economy".

In an early estimate, the number of people on company payrolls fell by 180,000 in the year to October, a drop of 0.6%. This was more than forecasters had expected.

The ONS data shows nearly 1.7 million people are claiming unemployment benefits, a slight decrease on the figure from a year ago.

Job vacancies saw a small uplift, rising by 2,000 to 723,000 between August and October 2025 compared to the previous quarter - the first increase in more than three years - though numbers remain well below the peak of 1.3 million recorded from March to May 2022.

The statistics also show a difference between public sector wage growth, up 6.6%, compared to the private sector, which grew by 4.2%.

Yael Selfin, chief economist at KPMG UK, said public sector pay growth was "approaching a peak" as big pay rises from last year were not expected to continue because of government budget pressures.

She added that private sector pay growth was "anticipated to fall further with more people in the labour market seeking work, weakening workers' bargaining power".

Richard Carter, head of fixed interest research at Quilter Cheviot, said with the Budget two weeks away "many businesses will have shelved any major hiring plans".

"Having already faced a significant rise in national insurance costs earlier in the year, they will likely be nervous to make any real commitments until they know whether further costs are heading their way," he said.

Tina McKenzie, policy chair of the Federation of Small Businesses, said the increase in unemployment and drop in the number of people on payroll shows the government's "complacent attitude to jobs and businesses".

She said small businesses had been stopped from employing staff by "ever increasing regulation, litigation and tax", and called for Rachel Reeves to "take action that backs jobs and growth".