Jobless rate rises as UK prepares to tighten its belt again

LONDON: Britain’s unemployment rate unexpectedly rose and vacancies fell for a fifth report in a row, as employers worried about the outlook for the economy, official data showed yesterday, ahead of a tough government budget plan later this week.

But pay growth stayed strong, with the increase in basic pay hitting a record high excluding the pandemic period, keeping pressure on the Bank of England (BOE) to continue raising borrowing costs despite the economic slowdown.

With finance minister Jeremy Hunt set to raise taxes and cut spending soon to fix the public finances, potentially deepening an expected recession, the jobless rate rose to 3.6%, pushed up by a rate of 3.8% in September alone.

Economists polled by Reuters had expected the unemployment rate to remain at 3.5%.

The number of people in employment fell by 52,000 in the July-to-september period, the Office for National Statistics (ONS) said, a bigger decline than the median forecast in the Reuters poll for a 25,000 drop.

The number of job vacancies in the August-to-october period fell to 1.23 million, its lowest since late 2021.

“Job vacancies continue to fall back from their recent peak, with increasing numbers of employers now telling us that economic pressures are a factor in their decision to hold back on recruitment,” ONS statistician Darren Morgan said.

The biggest falls in vacancies were in hospitality, followed by retailing and wholesaling.

However, the level of vacancies is still high by historical standards, underscoring the problems facing many employers struggling to fill their empty roles.

The BOE fears that Britain’s shrinking labour market will add to inflation pressures, forcing it to keep on raising rates even as the economy heads into an expected recession.

Wages excluding bonuses rose by 5.7%, their highest annual growth rate excluding the Covid-19 pandemic period. The Reuters poll had pointed to a smaller increase of 5.5%.

Including bonuses, wages rose by 6%, compared with the poll forecast of 5.9%.

“Overall, while today’s release provided some tentative signs that the labour market is turning, the BOE will want to see concrete signs of easing wage growth,” Ashley Webb, an economist with consultancy Capital Economics, said.

Sterling was up by more than half a percent against the dollar shortly after 8am.

Webb said the BOE would probably raise rates by another half percentage point in December before taking them to a peak of 5% although the budget statement could reduce the urgency for further rate hikes if it slows the economy sharply.

Wages are rising by far less than inflation which is expected to have hit 10.7% in data due soon, hitting the spending power of British households.

The ONS said both its measures for wages, adjusted for the consumer price index, were down by almost 4%.

The share of people classed as inactive – neither in work nor looking for it – fell to 21.6% from 21.7% in the three months to August.

Hunt has said he will address the problems of worker shortages in his budget statement.

Elsewhere, it was reported that unemployment in France eased back to its lowest in 14 years in the third quarter, official data showed, a figure that should be welcomed by the government as it battles soaring inflation.

The unemployment rate edged down to 7.3% from 7.4% in the previous three months, staying in the 7.3% to 7.4% range that has prevailed since the last three months of 2021.