UK Unemployment Drops as Pay Growth and Jobs Market Show Fresh Signs of Recovery
UK unemployment fell to 5% as payroll employment grew and wages rose by 4%, signaling a potential Bank of England rate hike amid economic stabilization.
POLICY WIRE — London, United Kingdom — British unemployment declined to 5% in the three-month period leading up to August, driven by a return to growth in payroll employment and pointing toward early indicators of labour market stabilization.
Official statistical data revealed that total employment grew by 102,000 across the quarter, bringing the aggregate number of employed individuals to 34.6 million. Concurrently, the rate of economic inactivity dropped slightly to 21%.
Payroll employment expanded by 13,000 during September, marking the most robust monthly increase recorded since August 2025. Even with this uptick, the total payroll count remained lower by 66,000 compared to figures from the previous year.
Wage growth maintained its strong trajectory, with regular pay and total pay both registering a 4% increase on an annual basis. Public-sector regular earnings advanced by 6%, outpacing the 3% growth rate observed in the private sector.
Despite improvements in employment metrics, job openings decreased by 21,000 to reach 691,000 during the three months ending in September, illustrating that employer demand for staff remains subdued.
Sanjay Raja, chief UK economist at Deutsche Bank, noted that the statistics reinforce mounting evidence that the jobs market is beginning to stabilize following an extended period of slow growth. He added that the positive shift should bolster government tax receipts while pointing to reduced spare capacity within the broader economy.
Deutsche Bank suggested that the data strengthens the justification for another interest-rate adjustment by the Bank of England, particularly given projections that inflation will climb above 4% in coming months. Raja stated that unless upcoming inflation figures present a significant downside surprise, a November rate increase appears increasingly probable.
Jack Kennedy, a senior economist at the employment platform Indeed, remarked that the newest numbers point to a labour market displaying resilience that mirrors the wider economy’s stronger-than-expected performance.
Additional survey data compiled by accountants KPMG and the Recruitment and Employment Confederation trade body demonstrated that permanent staff placements climbed at their fastest pace in four years, providing further evidence of recovery from the protracted slowdown.
Reporting by Policy-Wire (PW)
