Unemployment hits highest level in almost five years as jobs market cools further

Unemployment has crept up to its highest level in almost five years as the jobs market continues to stutter and pay growth slows.

The jobless rate increased to 5.1% in the three months to October, according to new official figures from the Office for National Statistics (ONS).

The latest reading is up from 0.1 percentage points from the unemployment rate in the three months to November, which came in at 5%.

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The last time unemployment was this high was in January 2021 – a time when the country was still in the midst of the Covid crisis.

The rise in joblessness also means there were 2.5 unemployed people per job vacancy in the three months to October, up from 2.3 people per vacancy in the previous quarter, and 1.8 in the previous year.

The employment rate (measured slightly differently from the unemployment rate) in the UK also fell in the three months to October, going down to 74.9%, a small drop from 75% in the three months to September.

Meanwhile, the ONS’s data shows the number of payrolled employees fell in November, going down by 38,000. This is more than the 22,000 fall that occurred in October.

Liz McKeown, ONS director of economic statistics, said the latest data shows “the overall picture continues to be of a weakening labour market”.

She added: “The number of employees on payroll has fallen again, reflecting subdued hiring activity, while firms told us there were fewer jobs in the latest period.”

Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said the labour market has “entered a period of gridlock”.

She argues this is incentivising workers to stay with their current employers instead of switching roles, which has “become a high-risk strategy for workers already struggling with elevated living costs”.

She added: “For many, it may feel safer to stick with an existing job than face all the uncertainties that come with moving – from probation periods and pension resets to a greater chance of redundancy or the loss of flexibility afforded by an employer who understands their value.”

Wage growth continues to slow

Employee’s average regular earnings grew by 4.6% in the three months to October, the ONS says, down slightly from 4.7% in the three months to September. The new data brings the average regular weekly earnings for those working in the UK to £687, rising to £739 for total pay.

When including bonuses, wage growth was slightly higher (4.7%), but there was still a month-on-month 0.1 percentage point fall.

Even when excluding bonuses, wages continue to grow faster than inflation, which has been stubbornly high for much of 2025. It means employees are getting real-terms pay rises of around 0.5% in the three months to October on their regular earnings, and of 0.6% on total earnings.

The public sector continued to lead pay growth in the three months to October, as average regular earnings grew by 7.6% for those employed by the government. Private sector workers averaged regular pay growth of 3.9%.

This disparity is partially explained by some public sector pay rises being paid earlier in 2025 than in 2024, causing a base effect.

Haine at BestInvest said: “Slowing wage growth is a concern for workers, who are also grappling with the Budget decision to extend the freeze on income tax thresholds by another three years to 2031.

“This prolongs the fiscal drag misery for workers up and down the country, who will see their take-home pay erode in real terms despite wages appearing to rise – a dynamic that may prompt a surge in higher wage demands.”

Haine added that this also presents a challenge for employers who need to either “absorb rising costs to meet wage demands, delivering a hit to their bottom line, or minimise pay rises and risk losing key talent”.

She said: “Many businesses have already scaled back hiring plans for 2026, signalling tougher conditions ahead for jobseekers who face the prospect of fewer opportunities and increased competition for roles.”

Weakening jobs market could lead to falling interest rates

This month’s labour market data comes just a few days before the Bank of England (BoE) meets to decide whether or not they will cut interest rates.

Most analysts currently expect the BoE’s Monetary Policy Committee (MPC) to cut rates in their next meeting on Thursday (18 December), with markets pricing in a 90% chance of this happening.

While a weakening jobs market is not a good economic indicator, the silver lining is that a higher unemployment rate tends to be a disinflationary force.

This could mean the MPC is more likely to vote to cut interest rates, as the economic backdrop means inflation is expected to continue falling, especially considering the UK economy shrank in October.

In its most recent meeting on 6 November the MPC was split down the middle whether to cut or hold, leaving BoE governor Andrew Bailey with the deciding vote to hold rates at 4%.

Richard Carter, head of fixed interest research at Quilter Cheviot, says the latest set of data means a cut is far more likely.

He said: “With the economy shrinking – largely thanks to the recent Budget and its impact on consumer confidence, spending and business planning – and the outlook for growth rather bleak, a cut is seeming more likely this time around.

“The Bank is still walking a tightrope. While it will want to spur some growth, it won’t want to inadvertently add to inflationary pressures. Nonetheless, should inflation come in lower as expected tomorrow, a rate cut could well be ticked off everyone’s Christmas list.”