Unemployment has risen to its highest level in almost four years as the jobs market shows signs of weakening.
The rate of unemployment rose to 5% in the three months to September, according to the latest data from the Office for National Statistics (ONS).
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Growth in employee’s average regular earnings, excluding bonuses, between July and September was 4.6%, down from 4.7% over the three months to August.
“The number of people on payroll is falling, with revised tax data now showing falls in most of the last 12 months.
“Meanwhile the unemployment rate is up in the latest quarter to a post-pandemic high. The number of job vacancies, however, remains broadly unchanged.”
Wage growth continues to slow
The last time average wage growth was as low as 4.6% was in February to April 2022, when wages grew by 4.5%.
Average wage growth, including bonuses, was 4.8% in the three months to September, down from 5% between June and August.
It was higher across the public sector, with salaries rising by 6.6% in the three months to September versus 4.2% across the private sector.
Wages continue to outpace inflation, with the latest figures from the ONS showing the CPI measure rose at 3.8% in the year to September, the same as the month before.
Alice Haine, personal finance analyst at investment platform Bestinvest by Evelyn Partners, said rising costs for employers, economic uncertainty and fears over potential future tax rises were stunting the labour market.
“With the Autumn Budget looming and scant positive economic data to latch onto, employers are understandably cautious about expanding their workforce as they brace for potential tax increases,” Haine said.
Employer National Insurance contributions were hiked in April while the National Minimum Wage rose to £12.21.
A recent survey from recruitment company Reed found almost half of employers are scaling back on hiring new staff in response to the increase in NICs.
“At the same time, the growing adoption of artificial intelligence tools to drive efficiency means many businesses anticipate reducing headcount in the months ahead,” Haine added.
David Morel, chief executive officer at London-based firm Tiger Recruitment, said the relative ease and cost-effectiveness of hiring talent from outside the UK, combined with concerns about the Employment Rights Bill, were also creating a weaker jobs market.
“The problem is that there is little light at the end of the tunnel and radical changes are needed to stop the rot,” said Morel.
Weakening jobs market could lead to falling interest rates
A weakening jobs market could lead to falling interest rates if the Bank of England (BoE) feels it has to try and encourage growth in the UK economy.
The BoE’s Monetary Policy Committee next meets in December to decide whether to keep interest rates at 4%, increase or lower them.
In its most recent meeting on 6 November, the MPC held rates at 4% ahead of the Autumn Budget as it signalled inflation had peaked at 3.8%.
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