Britain's unemployment rate hit its highest since the start of 2021 and private sector pay growth was the weakest in nearly five years in the run-up to finance minister Rachel Reeves' annual budget last month, official figures showed on Tuesday.
The downbeat data reinforced the chances that the Bank of England will cut interest rates on Thursday to help the almost stagnant economy.
The jobless rate edged up to 5.1% in the three months to October, its highest since the three months to January 2021, while private-sector pay growth, excluding bonuses, slowed to 3.9% from 4.2%.
Job market ‘visibly buckled’ before budget
"The UK's jobs market visibly buckled ahead of the budget," Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said. "The unrelenting uncertainty from a torrent of policy speculation and a slumping economy forced more firms to reduce recruitment and curb wage settlements."
Official data last week showed the economy unexpectedly shrank by 0.1% in the three months to October.
After months of media speculation over possible tax increases, Reeves announced 26 billion pounds ($35 billion) of tax hikes in her budget on November 26. But she delayed the introduction of most of them and spared employers the hit that she imposed in her first budget a year earlier.
Many employers have said they scaled back hiring this year after Reeves raised their social security contributions in October 2024.
A measure of payrolls data provided by the tax office showed a monthly drop of 38,000 in November. A fall of 32,000 first reported for October was revised to show a decline of 22,000 people in payrolled employment.
The drop in the number of people employed reinforces the general message from the unemployment data, which is based on a survey that the ONS says has shortcomings and is trying to improve.
Private sector pay growth at weakest since 2020
The ONS said annual pay growth in the private sector, excluding bonuses, slowed to its weakest since the end of 2020. The BoE is watching that measure closely as it tries to gauge how much inflation pressure remains in the economy.
By contrast, public sector wage growth accelerated to 7.6% from 6.6%, the fastest rise in records dating back to 2001, reflecting wage deals that kicked in at an earlier point this year than in 2024.
The pace of overall regular wage growth stood at 4.6%, slowing from an upwardly revised 4.7% in the third quarter and its lowest since April 2022. Economists polled by Reuters had forecast a slightly weaker 4.5% increase.
The pound briefly rose against the dollar and the euro immediately after the data was published while government bond prices were little changed.
Budget uncertainty, loss of momentum impact employment
Jack Kennedy, senior economist at jobs website Indeed, said a more fundamental loss of momentum in the economy, as well as the budget uncertainty, was weighing on employment.
"Looking ahead, planned increases in the minimum wage and the expansion of workers' rights are set to be further headwinds to labour demand in 2026, particularly in lower-paid sectors where job postings are already down 9% year-on-year," he said.
Financial markets are almost fully pricing a quarter-point rate cut by the BoE on Thursday and investors are watching for any signals about the monetary policy outlook in 2026.
Inflation data, due on Wednesday, is expected to show the main gauge of price growth in Britain slowed to a 3.5% increase in November from a 3.6% rise in October, still almost double the BoE's 2% target.
($1 = 0.7473 pounds)
(Reporting by William Schomberg; Editing by Kate Holton, David Milliken and Bernadette Baum)
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