UK Unemployment and Wage Growth Rise Amid Falling Job Vacancies

Highlights:

• Unemployment Rate Rises: The UK unemployment rate increased to 4.3% in the three months to September, surpassing expectations.
• Wage Growth Surges: Average weekly earnings, including bonuses, grew by 4.3%, driven by one-off payments in the public sector.
• Declining Job Vacancies: Job vacancies fell to 831,000 in the three months to October, marking a continued decline over the past two years.

The latest data from the Office for National Statistics (ONS) indicates a mixed picture for the UK labor market, with both unemployment and wage growth rising, while job vacancies continue to fall. The figures provide a glimpse into a shifting economic landscape, shaped by changing labor demand and evolving wage dynamics.

Unemployment on the Rise

The UK unemployment rate increased to 4.3% in the three months ending September, up from the 4.0% recorded a month earlier. This rise was slightly above the forecasted 4.1%, signaling a softening in labor market conditions. According to the International Labour Organization (ILO) data, this increase reflects a growing number of people unable to find work as economic pressures mount.

Economists noted that this rise in unemployment could be indicative of early signs of a cooling labor market, even before the full impact of the government's latest budget measures is felt. Deutsche Bank economist Sanjay Raja commented that “cracks are beginning to appear in the labor market,” with notable increases in the unemployment level.

Wage Growth Exceeds Expectations

Despite the rise in unemployment, wage growth showed surprising strength. Average weekly earnings, including bonuses, increased by 4.3%, outpacing the previous month’s revised figure of 3.9% and the market forecast of 3.9%. The ONS attributed this sharp rise to one-off payments made to civil service employees during July and August 2023.

When excluding bonuses, wages rose by 4.8%, slightly lower than the previous month’s 4.9% but still marking robust growth. However, this figure represents the lowest rate of wage growth in over two years, suggesting a potential slowdown in underlying pay increases as economic uncertainties weigh on business decisions.

Declining Job Vacancies Indicate Weaker Demand

Job vacancies in the UK continued their downward trend, falling to 831,000 in the three months to October 2024. This marks the 30th consecutive month of declining vacancies, highlighting a steady loosening in labor market conditions. The ONS noted that while the total number of vacancies is still above pre-pandemic levels, the vacancy rate – the proportion of unfilled jobs – has now slipped below where it was before COVID-19.

The Resolution Foundation added that the falling vacancy rates are a sign of weaker labor demand, as businesses respond to economic headwinds and rising costs. This decline in job openings, coupled with increasing unemployment, paints a picture of a labor market under pressure.

Mixed Signals for the Bank of England

The latest labor market data may not significantly influence the Bank of England’s monetary policy decisions ahead of its December meeting. Wage growth, while strong, was broadly in line with expectations, and the rise in unemployment suggests a slight easing of labor market tightness. The more real-time HMRC payroll data also pointed to a third consecutive month of declining payroll numbers, with a cumulative drop of 42,000 between August and October.

ONS director of economic statistics Liz McKeown advised caution when interpreting the short-term changes, noting that recent improvements in data collection methods are still feeding through. Nonetheless, the latest figures offer a snapshot of a labor market grappling with rising unemployment, strong wage pressures, and diminishing job opportunities.

Outlook for the Labor Market

Looking ahead, the combination of higher unemployment, slower wage growth, and declining job vacancies signals potential challenges for the UK labor market. While wage increases have been a positive development for workers, they also add inflationary pressures at a time when the broader economy faces uncertainty. As businesses adjust to the changing economic landscape, the labor market may continue to experience fluctuations in both employment levels and wage growth.