The UK labour market is curling up for a long winter, chilled by weak growth, rising employment costs, and deep business uncertainty. Employers are pulling back as unemployment climbed to 5.1% in the three months to October – the highest since 2021 – while payrolled employment continues to shrink. In hospitality, many firms are hanging on, a warning sign that the freeze could deepen.
Jobs are scarce for those out of work, yet pay remains relatively resilient for those still employed. Average earnings rose 4.6% in the three months to October (down from 5.9% earlier this year), while total pay, including bonuses, hit 4.7%. Overall, wage growth is cooling, slowly aligning with the broader slowdown.
What it means for the economy
Overall, the employment market paints a worrying picture, reflective of caution among employers and an economy decelerating markedly into the year-end. October’s GDP growth marked back-to-back monthly falls of -0.1% month on month, raising the prospect that the UK economy could see its first quarterly contraction since Labour returned to government.
Possibly, there are some temporary factors partly to blame, and a pre-Christmas rebound could turn things around. Now that the Budget is out of the way, there’s a bit more certainty for employers and the opportunity for a clearer view. Yet the heavy load of tax and employment regulation still runs counter to the goal of a flexible, vibrant jobs market that could reignite growth.
What it means for interest rates
The chill in jobs strengthens the case for rate cuts. Inflation is fading, and Budget measures should overall ease rather than stoke prices. While the MPC remains split, a Bank of England base rate cut on Thursday looks all but certain, with policymakers – governor included – increasingly alarmed by the economic slowdown.
