Unemployment in the UK has risen to its highest level in four years, according to new data from the Office for National Statistics (ONS), highlighting a deepening UK jobs market slowdown just weeks ahead of Chancellor Rachel Reeves’ autumn budget.

The headline UK unemployment rate climbed to 5.0% in the three months to the end of September, up from 4.8% in the previous quarter. The increase brings the total number of unemployed people to 1.8 million, the highest since January 2021 at the height of the Covid pandemic.

Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said the figures reveal a labour market hit by “pre-budget jitters," adding, "Businesses already weakened by April’s rise in national insurance are now cutting recruitment further in anticipation of another difficult budget."

The data could increase pressure on the Bank of England to cut interest rates, possibly as soon as next month. While the Bank kept rates unchanged last week, it hinted at a possible rate cut in December amid signs that inflation has peaked.

The bank has forecast that unemployment could rise further above 5% in 2025. A cooling labour market may ease inflationary pressures, making it harder for workers to demand higher wages and for businesses to raise prices.

Reeves faces pressure as budget nears

The job market figures come just under three weeks before Reeves is due to deliver her tax and spending statement on November 26. The Chancellor is expected to raise taxes to address a public finance shortfall of up to £30 billion, but business groups warn that further tax increases, particularly on employers, could deepen the employment crisis.

Reeves’ previous increases in employer national insurance contributions and the national living wage have already triggered job cuts, especially in part-time and lower-wage sectors such as hospitality, leisure, and retail. Figures released by HMRC show that the number of payrolled employees fell by 180,000 over the past year and dropped by 32,000 in October alone.

Part-time and hospitality jobs most affected

ONS data also showed that total job vacancies remained broadly flat between August and October, but were down 99,000 compared to the same period last year. The largest employment drops were recorded in wholesale and retail, accommodation and food services, and information technology, all industries heavily affected by rising business costs and weak consumer demand.

With the job market under strain, pressure is mounting on Threadneedle Street to shift course on interest rates. Analysts suggest a cut could come as early as December if economic conditions continue to deteriorate. Adding to concerns, annual wage growth fell more sharply than expected, with average weekly earnings rising just 4.8%, down from 5%. Economists had anticipated no change.

In response to the figures, Secretary of State for Work and Pensions Pat McFadden said that despite the setback, the government is pushing ahead with measures to boost employment. "Over 329,000 more people have moved into work this year already,” he said. “But today’s figures are exactly why we’re stepping up our plan to get Britain working."

McFadden highlighted new initiatives, including modernized job centres, expanded youth hubs, and partnerships with employers to address ill-health in the workforce.