The UK labour market is showing clearer signs of strain, just as the Bank of England prepares for a pivotal week.
Unemployment rose to 5.1% in the three months to October – its highest level since 2021 – while hiring momentum continues to falter and wage growth edges lower. The latest ONS UK jobs figures were announced in the ONS labour market overview, which lands with markets laser-focused on tomorrow’s inflation data and Thursday’s MPC decision, sharpening expectations that a long-anticipated rate cut could finally arrive.
Rising employment costs, budget uncertainty and caution ahead of tax and regulatory changes have all weighed on hiring, leaving younger and first-time workers particularly exposed. Seasonal recruitment has also disappointed during what is usually the “golden quarter” for retailers and hospitality firms, underlining how fragile confidence remains.
For policymakers, the message is becoming harder to ignore. With jobs growth weak, pay pressures cooling and growth stalling, today’s data strengthens the case that monetary easing – perhaps even before Christmas – may now be less a gift and more a necessity.
Experts from across the industry have been sharing their views on the jobs data as well as expectations for interest rate moves as follows:
Danni Hewson, AJ Bell head of financial analysis, comments:
“Businesses and lobby groups warned that the double whammy of increased labour costs imposed during the last Budget would force them to think carefully about their hiring intentions.
“Changes to employer National Insurance and the increase in the National Living Wage simply made it more expensive to have employees on the books, and though the government has now adopted a more pragmatic approach when it comes to the Employment Rights Bill, its passage through parliament has made some employers hesitate to take on new workers.
“Getting that first job has become increasingly difficult, with businesses less likely to take a punt on fresh faces as costs have increased.
“Add in all the instability caused by months of speculation about what might be in this year’s Budget, which saw growth vanish and confidence undermined, and there will be few people surprised by today’s data showing that unemployment has hit a high not seen since the height of the pandemic.
“This period is slap bang in the middle of what is often referred to as the ‘golden quarter’, the period when retailers and hospitality businesses bring in thousands of seasonal workers to help them cope with a festive boom.
“But nerves about potential tax hikes have pushed many people to press pause on their Christmas planning. Whilst some will be exhaling after what was a relatively benign Budget for business, the hospitality sector is bracing itself for increased business rates, with warnings that many may struggle to keep the doors open.
“There is a sliver of silver lining the black clouds that have been gathering on the horizon. Wage growth slowing further should enable UK rate setters to deliver an interest rate cut later this week. But for younger workers in particular, the current state of the labour market will be disheartening, demoralising and dispiriting.”
Richard Carter, head of fixed interest research at Quilter Cheviot said: “The ONS has kicked off what’s set to be a bumper week of data prints and interest rate decisions with reports of another rise in the unemployment rate and slight softening in wage growth. All eyes now turn to Threadneedle Street where the Bank of England’s monetary policy committee will meet on Thursday, and today’s figures make a cut seem all the more likely.
“Unemployment rose once again, hitting 5.1% in August to October up from 5% prior quarter. Estimates for payrolled employees dropped by 149,000 between October 2024 and October 2025, and decreased by 22,000 on a monthly basis. Initial estimates for November also show the number of payrolled employees decreased by 38,000 on the month, though this is subject to revisions.
“Businesses slammed the brakes on hiring ahead of the budget, and the Chancellor’s measures haven’t tempted them to restart. With national insurance costs having already risen this year and a cap on NIC exemptions to come, many firms are wary of making sizeable commitments with increased bills on the horizon.
“Meanwhile, wage growth, which has been a heavy burden on the Bank of England for several years now, has eased slightly. Annual growth in total earnings including bonuses fell to 4.7% from 4.8%, while regular earnings excluding bonuses held at 4.6%. With the knowledge that earnings pressure has continued to lessen, albeit minimally, it could sway a couple of committee members towards a cut on Thursday.
“At November’s meeting, the MPC was split almost down the middle, and Andrew Bailey’s deciding vote saw rates held. However, 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.”
Luke Bartholomew, Deputy Chief Economist, at Aberdeen said;
“Despite wage growth coming in a bit stronger than expected, it is hard to see this data derailing a Bank of England cut on Thursday. Jobs growth remains weak, and unemployment rose again. Certainly the Bank will want to see this loosening in labour market conditions continuing to feed into softer pay growth eventually. But with GDP growth recently coming in soft, and inflation tomorrow data likely to confirm that inflation is well past its peak, the pieces are in place for several further rate cuts.”
Derrick Dunne, CEO of YOU Asset Management, has commented on this morning’s labour market overview from the ONS:
“Today’s wage data will be welcomed by the Bank of England. It offers clarity that is, as ever, urgently needed on the decisions to be taken over rates.
“Total earnings, including bonuses, had already eased from 5.0% to 4.8% in November’s bulletin, and a further decline now suggests that pay pressures are continuing to cool. This should strengthen the notion that inflation is gradually moving in the right direction.
“Set against a backdrop of weakening momentum across the jobs market, with hiring slowing and vacancies continuing to trend downwards, these latest data will reinforce concerns about the fragility of the economy. For many businesses and households, conditions are becoming increasingly challenging.
“But when the Monetary Policy Committee meet on Thursday, it will now face a more straightforward agenda. With wage pressures easing and fiscal policy tightening following the measures set out in the Autumn Budget, policymakers may judge that the economy now requires monetary support to prevent the slowdown from deepening.
“Much now depends on tomorrow’s inflation figures. If they show further improvement, today’s wage numbers could pave the way for the MPC to cut rates this week.”
