The UK’s jobless rate has unexpectedly risen to 5.0%, its highest point since 2021, signalling that Britain’s employment market is cooling faster than expected just weeks before Chancellor Rachel Reeves unveils her autumn budget.
A Sharp Uptick in Joblessness
Fresh data from the Office for National Statistics (ONS) show unemployment climbed from 4.8% in the previous quarter to 5.0% in the three months to September 2025.
That means around 1.8 million people are now officially out of work – a level unseen since the pandemic years.
The figure overshot analysts’ forecasts of a smaller rise to 4.9%, prompting new speculation that the Bank of England could move to cut interest rates sooner than previously planned.
Payroll and Wage Growth Cooling
Separate figures from HM Revenue & Customs underline the slowdown: the number of employees on company payrolls dropped by 32,000 between September and October and by roughly 180,000 compared with a year ago.
Wage growth also cooled, with average weekly earnings increasing by 4.8% annually, down from 5% and below City expectations – suggesting workers are losing some bargaining power as hiring weakens.
Businesses Brace for Reeves’s Budget
Economists say companies appear to be pulling back on recruitment ahead of the 26 November budget, fearing new tax hikes or tighter fiscal measures.
Suren Thiru of the Institute of Chartered Accountants in England and Wales said the figures hint at “pre-budget jitters,” with many employers “already struggling under April’s national-insurance increase” and therefore delaying new hires.
Business groups warn that any further rise in taxes could deepen the slowdown. The government’s £25 billion increase in employer national-insurance contributions and next year’s uplift in the national living wage have already raised costs in hospitality, retail, and leisure – sectors now showing the biggest job losses.
Market Reaction and Interest-Rate Expectations
The news rattled currency traders: the pound briefly slipped 0.3% against the dollar before recovering, while markets boosted their bets on a December rate cut, raising the implied probability from 60% to 75%.
The FTSE 100 nonetheless reached a record 9,899, supported by optimism about a potential US government deal ending its shutdown and hopes that cheaper borrowing could spur growth.
The Bank of England last week held interest rates steady but signalled that inflation had peaked and a rate reduction might follow if economic conditions continue to soften.
Youth Unemployment Becomes Flashpoint
Ministers are increasingly worried about the surge in youth joblessness. Almost 1 million young people are now classified as NEETs (not in employment, education or training) – the highest number in a decade.
In response, the government has asked former health secretary Alan Milburn to lead an independent review into how mental-health challenges and disabilities are affecting young people’s access to work.
A separate study led by ex-John Lewis boss Sir Charlie Mayfield also warned that long-term “economic inactivity” among young adults poses a growing structural threat to the UK economy.
Official Response
Work and Pensions Secretary Pat McFadden said that more than 329,000 people have found jobs this year, but admitted the latest figures underline the need for “the most ambitious employment reforms in a generation.”
Plans include upgrading job centres, expanding youth hubs, and strengthening partnerships with employers to tackle ill-health-related inactivity.
What Comes Next
The Bank of England expects unemployment to remain above 5% next year, which could help cool price pressures but risks weighing further on growth.
For the Chancellor, that presents a delicate balancing act: raising taxes to fill a £30 billion budget hole without stifling the fragile recovery.
Economists warn that if Reeves again leans on business-tax rises, the pain could shift from boardrooms to payrolls.
As Martin Beck of WPI Strategy put it, “Any new levy on firms could accelerate layoffs, but this time the government may look more toward higher-income earners instead.”
