‘Experimental’ UK unemployment rate ticks up slightly as hiring slows

Estimates for June to August 2023 show a slight increase in the unemployment rate by 0.2 percentage points to 4.2%, compared with the previous quarter.

The ONS recorded a 0.3 percentage point decrease in the UK employment rate to 75.7%, compared with the previous quarter from March to May 2023. It is up on the year but still below pre-pandemic levels.

Estimates for this set of data have been labelled ‘experimental’ by the ONS, as it uses growth rates from ‘pay as you earn’ data and the claimant count to provide a “more holistic view of the state of the labour market”.

Pay growth eases as UK starting salary inflation drops to two-and-a-half-year low

Overall, the picture this new data provides is one of stability in the labour market.

During the same period, economic activity ticked up by 0.1 percentage points to 20.9% versus the previous three months.

Vacancies are continuing to fall as firms put hiring on hold. In July to September 2023, the estimated number of vacancies in the UK fell by 43,000 on the quarter to 988,000. This is the 15th consecutive period of falls, with vacancies dropping in 14 out of 18 industry sectors.

Marcus Brookes, chief investment officer at Quilter Investors, said the new data analysis method from the ONS provides a “slightly clouded picture of what is happening in the labour market, at a point where we are a very finely balanced point in the rate hiking cycle”.

UK unemployment rate edges up as wage growth catches up with inflation

“We know that economic growth in the UK is slowing and could potentially turn negative for the fourth quarter, so today’s data provides further evidence that things may be beginning to roll over,” he said.

For the Bank of England these figures “may be just enough to continue with a pause at its next interest rate decision”, Brookes added, after it hit the brakes at its last meeting.

Neil Birrell, chief investment officer at Premier Miton, and lead manager of the Premier Miton Diversified Growth funds, said under the new methodology the September UK employment data “came in much as expected”. 

“After slightly weaker retail sales numbers, the data on the economy is still ambiguous. It is hard to believe that sticky inflation and higher interest rates won’t have more impact on the surprisingly robust economy. Focus is now all on the upcoming round of central bank policy decisions,” he added.

Bank of England holds rates at 5.25% in 5-4 split vote

Today’s (24 October) data follows analysis from the Recruitment and Employment Confederation showing British employers cut their job vacancies for the first time in over two and a half years last month.

Derrick Dunne, CEO of YOU Asset Management, said it is anticipated that month-to-month growth in wages will slow later this year, “all encouraging data for anyone making the case against a return to rate rises. But with so many moving parts at play, it’s too soon to call it either way”.

“Ever mindful of the inflationary impact of tight labour conditions, the Bank’s Monetary Policy Committee (MPC) will want to see the jobs market loosen further than it has to-date before it starts to unpick the 14 months of consecutive interest rate hikes that preceded last month’s decision to hold at 5.25%,” Dunne said.