UK unemployment rate rises to 5.1%

DEC 16 – The UK unemployment rate in the three months to October has increased to 5.1%, according to official figures.

That marked a rise from 5% last month and 4.7% in the previous quarter. The comparative figure for the three months to October 2024 was 4.3%.

The figures reflect a weaker labour market, particularly as businesses held off hiring before the Budget.

The Office for National Statistics (ONS) said the “subdued labour market” was particularly affecting young people.

The percentage of people in the UK who are unemployed is now at its highest level since January 2021, just below the peak rate seen during the Covid-19 pandemic.

Meanwhile, wages are still rising faster than prices but pay growth is slowing at companies.

Average wage growth was 4.6%, excluding bonuses, between August and October 2025, but headed in different directions depending on whether you were employed by a company or the state.

Earnings growth in private companies slowed from 4.2% to 3.9% but accelerated for the public sector employees from 6.6% to 7.6%, compared with the prior three-month period.

The latest figures cover the period before the Budget in November. Uncertainty around whether the Chancellor would raise taxes led many employers to hold off on hiring.

Many firms have also said that they are still feeling the effects of last year’s Budget, where national insurance rises made hiring more expensive.

Estimates for employees on company payrolls dropped by 149,000, or 0.5%, in October compared with the previous year.

Liz McKeown, the ONS director of economic statistics, said the figures indicate “a weakening labour market”.

“The number of employees on payroll has fallen again, reflecting subdued hiring activity.

The number of people in the UK who are unemployed is now at its highest level since January 2021, just below the peak rate seen during the Covid-19 pandemic.

Ms McKeown also said young people were particularly affected by the fall in payroll numbers and the rise in unemployment.

The number of unemployed 18-24 year olds increased by 85,000 in the three months to October 2025, the largest rise since November 2022.

The government has said it will launch an investigation into youth unemployment and inactivity.

Meerah Nakaayi is 22 and from London. She did a two-year apprenticeship in policy and then worked in the sector for two years, but has been out of work since June.

Meerah said: “The last six months have been incredibly frustrating and demotivating.

“My last interview feedback stated how they had 290 applications for a policy analyst role … for a niche policy area. I think that just shows how competitive it really is out there.”

James Reed, the chief executive of Reed Recruitment said all the main measures of the labour market were “going in the wrong direction”.

“I’m wondering whether they’ve hit the bottom or not,” he said.

Mr Reed told the BBC’s Today programme the increase to the minimum wage announced in the Budget was “very welcome for people who have jobs” but “the economics of hiring at entry level is becoming less and less appealing to employers”.

The government has pledged to scrap the two-tier minimum wage and create a new rate for all adults.

But many businesses have said this will make them less inclined to hire young workers with little or no experience.

The Bank of England is due to make a decision on Thursday on whether to cut interest rates or hold them at 4%. Analysts now believe a rate cut is more likely as the labour market stagnates.

Yael Selfin, chief economist at KPMG UK, said the Bank’s Monetary Policy Committee (MPC) has indicated that a rate cut “would depend on wage pressures continuing to moderate”.

“The latest evidence from the labour market should be sufficient to justify a rate cut later this week,” she said.

Ms Selfin pointed to the “marked slowdown” in companies hiring people and predicted fewer and smaller pay rises in the private sector in the near-term.

However, inflation in the UK is currently almost double the Bank’s target of 2%. Lower interest rates can fuel inflation as the cost of borrowing is lower.

Richard Carter, head of fixed interest research at Quilter Cheviot, said the Bank is “still walking a tightrope,” because it wanted to encourage growth but also keep inflation tracking downward.

The ONS is due to publish the latest inflation figures on Wednesday, ahead of the MPC’s decision.

“Should inflation come in lower as expected tomorrow, a rate cut could well be ticked off everyone’s Christmas list,” Mr Carter said.

Responding to the ONS figures, Secretary of State for Work and Pensions Pat McFadden said the data “underline the scale of the challenge we’ve inherited”.

“That is why we are investing £1.5bn to deliver 50,000 apprenticeships and 350,000 new workplace opportunities for young people – giving them real experience and a foot in the door.

Helen Whately, shadow work and pensions secretary, accused the government of implementing “growth-killing policies” that would lead to job losses in the run up to Christmas.

“Fourteen months in a row of higher unemployment means thousands of families will be struggling through the holiday season and without a steady income heading into the New Year.”

ONS statistics are used in deciding government policy, which affects millions, and are also used by the Bank of England to make key financial decisions, such as setting interest rates.

But a review of the ONS was highly critical of the agency, calling into question the quality of the economic data it produces.

The ONS has struggled, as have many statistical bodies, with tight budgets and with the problem of getting people to fill in the questionnaires needed for their data.

Specifically with employment and wage figures, the response rate for the Labour Force Survey is consistently low.

Only one in four of businesses responded to this employment survey.

By BBC