The UK unemployment rate rose to 5 percent in the three months to September, the highest level since early 2021, according to official figures that show clear signs of a slowing jobs market.
The latest data from the Office for National Statistics (ONS) also revealed that the number of payrolled employees fell by 109,000 over the year, and by 26,000 on the quarter, while average wage growth eased slightly. The figures come ahead of the government’s budget on 26th November and were higher than analysts’ forecasts of 4.9 percent.
Average regular pay, excluding bonuses, grew by 4.6 percent in the third quarter, down from 4.7 percent in the previous three-month period. Total pay, including bonuses, increased by 4.8 percent. When adjusted for inflation, regular pay rose by 0.5 percent in real terms.
Post-pandemic high
Liz McKeown, director of economic statistics at the ONS, said the latest data “point to a weakening labour market”. She added: “Meanwhile the unemployment rate is up in the latest quarter to a post-pandemic high. The number of job vacancies, however, remains broadly unchanged.”
 |
Get our essential daily HR news and updates. |
Unemployment in the UK last reached 5 percent during the winter of 2020–2021, when pandemic restrictions had disrupted hiring across most sectors. The new figures suggest the market has begun to cool again following two years of relatively strong growth.
The ONS estimated that the total number of payrolled employees stood at 30.3 million in October, a fall of 180,000 compared with a year earlier. Vacancies remained steady at around 723,000 between August and October, indicating that employers are still cautious about adding new roles.
Falling employment, steady vacancies
The employment rate for those aged 16 to 64 was estimated at 75 percent, down slightly on the quarter but still higher than a year ago. The economic inactivity rate, covering people not in work and not looking for a job, remained broadly unchanged at 21 percent.
While unemployment rose, the number of people claiming unemployment-related benefits fell marginally over the year to 1.7 million. The ONS said it was continuing to improve data collection methods after revising its Labour Force Survey earlier this year, but advised that volatility remains and estimates “should be treated with caution”.
The government said the data underline the need for stronger action to encourage people into work. Work and Pensions Secretary Pat McFadden said: “Over 329,000 more people have moved into work this year already, but today’s figures are exactly why we’re stepping up our plan to get Britain working.”
Wage trends and sector differences
Pay growth across the private sector averaged 4.2 percent, while the public sector recorded 6.6 percent — a figure affected by the timing of pay awards earlier in the year. Despite the slight slowdown, real pay growth remains positive as inflation continues to ease.
ONS data also showed that while payrolled employment has declined in 11 of the past 12 months, vacancies have held broadly steady. This suggests that rather than large-scale layoffs, many employers are reducing headcount gradually through hiring freezes or slower recruitment.
Analysts said it showed a softening but not collapsing market, with unemployment still relatively low by historical standards. A 5 percent rate means around 1.7 million people are classed as unemployed, defined as those without a job who have been seeking work within the last four weeks and are available to start within the next two weeks.
Small firms show resilience
Kevin Fitzgerald, UK managing director at HR platform Employment Hero, told HRreview that the latest ONS data reflected the strain on firms ahead of the budget. He said that “uncertainty around November’s Autumn Budget – alongside persistent inflation – is putting pressure on businesses”.
Fitzgerald said that speculation over possible tax rises had led many employers to “play it safe” when hiring, while smaller firms were showing more willingness to take risks to maintain growth. “Those still hiring are the small businesses willing to take a risk rather than stall growth,” he said.
Employment Hero’s own data indicated that employment among small and medium-sized enterprises grew by 2.3 percent in October, which Fitzgerald described as “resilience in action”. He said smaller companies tended to feel the effects of economic shifts sooner but also recover more quickly when confidence improved.
He added that the upcoming Autumn Budget was “a chance to learn from past mistakes”, noting that last year’s employment tax changes had caused “an immediate slowdown in hiring”. Fitzgerald said that if the government wanted to continue job growth and control inflation, it “can’t keep penalising the very businesses that power our economy”, adding that “the way to get Britain working again is to back small businesses, not burden them”.
Adapting to the new shape of work
Economists said the figures reflected a gradual adjustment as businesses adapt to tighter budgets, technological change and ongoing skills mismatches. With productivity growth sluggish and automation advancing, employers are expected to continue balancing workforce reduction with selective hiring in areas such as technology, logistics and green energy.
The ONS data also showed that 39,000 working days were lost because of labour disputes in September, a modest rise from earlier in the year but far below levels recorded during the public sector strikes of 2023 and 2024.
For HR leaders, the latest data signal the need for greater workforce planning and retention efforts, as the pool of available workers remains limited even as unemployment rises. Experts say organisations that combine targeted reskilling with improved job design are likely to be better positioned to weather slower growth and future shifts in demand.
The next labour market update will be published on 16 December and will include revised figures for October.
