Unemployment remained stuck at a near five-year high and wage growth continued to cool in the months running up to Rachel Reeves’s November budget, official figures showed.
The Office for National Statistics (ONS) said on Tuesday that the rate of unemployment in the UK economy held steady at 5.1 per cent in the three months to November, the highest level since the quarter to January 2021 and in line with analysts’ expectations.
Joblessness in the UK economy has steadily increased since 2022, but government figures indicated that tax rises announced by the chancellor in her first two budgets have exacerbated weakness in the labour market.
Liz McKeown, director of economic statistics at the ONS, said: “The number of employees on payroll has fallen again, with reductions over the last year concentrated in retail and hospitality, and reflecting ongoing weak hiring activity.”
According to data from HM Revenue and Customs also released on Tuesday, the number of payroll employees has contracted by 220,000 since the budget in October 2024. Over the last month to December, payroll employment dropped by 43,000, the biggest monthly decline since November 2020, the height of the Covid-19 crisis, although these figures are often revised.
“While there was a slight increase in vacancies in the latest period, the overall number has remained broadly flat over the last six months, following a long decline”, McKeown added.
Yael Selfin, chief economist at KPMG UK, said more up-to-date economic data from the private sector “points to employers continuing to signal their intention to reduce hiring, with higher employment costs dampening labour demand”.
She added that these figures indicated that joblessness could increase to 5.3 per cent by the end of the year.
In the three months to November, wages excluding bonuses increased by 4.5 per cent, the smallest increase since the quarter to April 2022. In the private sector, pay rose by 3.6 per cent, a five-year low, while wages in the public sector leapt by 7.9 per cent.
The decline in wage growth will strengthen the case for the Bank of England to deliver further interest rate cuts this year. Financial markets believe that the central bank will lower rates twice in 2026, taking them down to 3.25 per cent from 3.75 per cent.
The labour market has been hit hard by the chancellor’s decision to raise employer national insurance contributions by £25 billion in her first budget in October 2024. Sluggish consumer spending, still elevated interest rates, and higher operating costs have also made businesses more reluctant to hire workers.
The share of people not in work and not looking for a job – known as economically inactive – dropped to 20.8 per cent from 21 per cent over the last quarter.