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The UK unemployment rate has risen to 5% in the three months to September, the highest since early 2021, according to the latest figures from the Office for National Statistics (ONS). The increase was slightly higher than expected and adds to signs that the jobs market is starting to soften.

The rise comes ahead of the government’s Budget later this month and may add further pressure to the Chancellor’s decisions.

Signs of a cooling jobs market

While unemployment has ticked up, the number of job vacancies has remained broadly unchanged at around 723,000 between August and October. Early data suggests the number of people on company payrolls fell by 180,000 in the year to October - more than forecasters had predicted.

Liz McKeown, director of economic statistics at the ONS, said the latest data “points to a weakening labour market”, with unemployment reaching a post-pandemic high. The ONS noted that its unemployment figures should be treated with caution while it continues work to improve data quality.

Wage growth slows

Average pay growth across the economy stood at 4.6% in the third quarter, slightly down from 4.7% in the previous three months. The difference between public and private sector pay continues to widen: public sector wages rose 6.6%, while private sector grew 4.2%.

According to Yael Selfin, chief economist at KPMG UK, public sector pay growth is “approaching a peak” as last year’s pay settlements work their way through the system. She added that private sector pay is likely to slow further as more people re-enter the workforce, reducing wage pressures.

What this means for employers

For many businesses, the figures reinforce what’s already being felt on the ground. Richard Carter of Quilter Cheviot suggested that with the Budget only weeks away, many companies have “shelved any major hiring plans” amid uncertainty over potential new costs or tax changes.

The Federation of Small Businesses (FSB) echoed that view, warning that regulation, litigation and tax burdens continue to make it harder for smaller businesses to employ staff.

Looking ahead

The Bank of England has projected that unemployment will remain close to 5% for the next few years, suggesting employment growth could remain subdued over the medium term.

For business owners, the key questions now centre on the upcoming Budget - whether measures will support job creation and investment, or whether further cost pressures could make a challenging jobs market even tougher.

See: https://www.bbc.co.uk/news/articles/cdxrp7znkdlo