The UK labour market weakened significantly in the run-up to the Autumn budget, with official figures revealing unemployment has climbed to its highest level in four years.
Key Figures Show Sustained Deterioration
According to data from the Office for National Statistics (ONS), the unemployment rate rose to 5.1% in the three months to October. This marks a steady increase from 5% in the previous month and represents the highest level seen since late 2020. Economists surveyed by Reuters had anticipated this rise.
The increase was not solely due to people struggling to find work; a rise in the number of people claiming unemployment-related benefits indicates that employers have begun laying off staff. This shift suggests a cooling economy is now impacting job security.
Concurrently, growth in regular pay, which excludes bonuses, showed signs of easing. Earnings growth on this measure fell to 4.6% in October, down from 4.7% in September.
A Steady Climb in Joblessness Since 2023
The current figures are the culmination of a prolonged trend. Unemployment has been rising consistently since the end of 2023, when the rate stood at 3.9%. By the time of the July 2024 general election, it had increased to 4.2%, before reaching 5% in the three months to September 2025.
A stark analysis by the Resolution Foundation think tank highlights that young people have been hit hardest. Their research found that from October 2020 to September 2025, an additional 415,000 people under the age of 26 swelled the unemployment count.
Economic Context and Future Outlook
The labour market data arrives amid mixed economic signals. While wages have outpaced inflation for much of the past two years, a significant portion of this extra disposable income, particularly among higher earners, has been saved rather than spent, limiting economic stimulus.
Inflation itself has proven volatile, rising from below 2% last year to a summer peak of 3.8% before falling back to 3.6% in October. This combination of falling inflation and weak growth is expected to persuade the Bank of England to cut interest rates from 4% to 3.75% at its upcoming meeting.
Such a move would reduce borrowing costs for households and businesses, potentially easing financial pressures and helping to limit further increases in unemployment during 2026.
