UK unemployment rises to four-year high of 5.1% before budget

Published: 16 December 2025. The English Chronicle Desk. The English Chronicle Online.

The UK’s unemployment rate climbed to a four-year high of 5.1% in the three months to October, signaling a weakening labour market ahead of last month’s budget.

Data from the Office for National Statistics (ONS) revealed that this was the highest unemployment rate since January 2021 and, when excluding pandemic-era distortions, the highest since early 2016. Analysts warned that the figures make it almost certain the Bank of England will cut interest rates when policymakers meet this Thursday.

The central bank has previously indicated that it wants wages growth to decline further before easing the cost of borrowing. October’s figures showed wage growth excluding bonuses fell slightly to 4.6%, down from 4.7% in September, marking the lowest growth since early 2022.

ONS estimates also revealed a sharp decline in payroll employment, with the number of people on company payrolls dropping by 38,000 to 30.3 million in November, the largest monthly fall in five years and significantly worse than anticipated. The rise in unemployment benefits claims, which edged up to 1.696 million from 1.686 million in August, indicates that layoffs were a contributing factor to the weakening labour market.

Economists polled by Reuters had predicted the unemployment rate would rise to 5.1%, up from 5% in September. Younger workers appeared particularly affected, struggling to secure employment amid the challenging hiring climate.

Suren Thiru, economics director at the ICAEW accountancy body, described the labour market as “unravelling” amid a “slumping” economy. He pointed to last week’s unexpected 0.1% drop in GDP for October as evidence of growing economic weakness.

“The UK’s jobs market visibly buckled ahead of the budget as the unrelenting uncertainty from a torrent of policy speculation and a slumping economy forced more firms to reduce recruitment and curb wage settlements,” Thiru said. He added that the rapid deterioration of the labour market makes an interest rate cut on Thursday “inevitable,” as the latest figures exacerbate concerns over economic conditions.

The Bank of England is expected to reduce the cost of borrowing from 4% to 3.75% in response to the labour market downturn. Ashley Webb, UK economist at Capital Economics, noted that the central bank will likely await further slowdown in private sector pay growth, which remains the Bank’s preferred measure, before cutting rates.

The rising joblessness has also affected retail and other private businesses. The British Retail Consortium highlighted that its members had faced rising costs, leading to significant job cuts, while the British Chambers of Commerce noted that businesses are less confident about hiring due to high employment costs and forthcoming employment legislation.

Private sector pay growth fell to 3.9% in the three months to October from 4.2% in September. Public sector pay, by contrast, rose from 6.6% to 7.6%, largely due to awards for prior years when inflation was higher.

Work and Pensions Secretary Pat McFadden emphasised that despite the rise in unemployment, over 350,000 more people are in work this year and inactivity rates are at a joint five-year low. He acknowledged, however, that the figures underline the challenges inherited by the current administration.

Unemployment has risen steadily since December 2023, when the rate was 3.9%. By the July 2024 general election, it had increased to 4.2%, and by September 2025, it reached 5%. Young people have been disproportionately affected, with a Resolution Foundation study showing an additional 415,000 under-26s unemployed between October 2020 and September 2025.

Wages have generally outpaced inflation over the past two years, although much of the additional disposable income, particularly among higher earners, has been saved rather than spent. Inflation itself has fluctuated, rising from below 2% last year to 3.8% in the summer before falling back to 3.6% in October. Upcoming figures are expected to show a modest decline to 3.5%.

The rising unemployment and slowing wage growth reflect the broader economic uncertainty facing the UK ahead of the budget. Policymakers will need to carefully balance supporting growth, ensuring public sector stability, and maintaining confidence in the labour market amid ongoing global economic pressures.