This morning has brought some disappointing news for the UK from the labour market and we can start with what is already grabbing the headlines.
The UK unemployment rate for people aged 16 years and over was estimated at 4.8% in June to August 2025. This is up in the latest quarter and above estimates of a year ago.
We do not get cleat cases of economics 101 that often but here looks to be one. If you increase employment taxes then you get higher unemployment. As I pointed out only yesterday I wrote that I feared this at the time of last October’s UK Budget. The rise in employer’s National Insurance will no doubt find its way into future economics text books. There is further detail on the breakdown of the numbers below.
In the latest quarter (June to August 2025), those unemployed for up to 6 months increased, the number of those unemployed for between 6 and 12 months was largely unchanged and those unemployed for over 12 months increased.
We can also do a basic test via the employment numbers which confirm the weaker economic trend.
In June to August 2025, the estimated UK employment rate decreased 0.2 percentage points to 75.1%,
As an aside the Office for National Statistics gets itself into rather a muddle by presenting the same information across different releases. Another area in need of reform and improvement. But the basic message here is of matching moves but in the opposite direction for employment and unemployment.
The Retired Go Back To Work
That is the central message below.
The employment level increased in the latest quarter (June to August 2025), while the number of people in employment aged 16 to 64 years decreased, resulting in a decrease in the employment rate. The increase in the employment level was largely caused by increases in those aged 65 years and over and part-time employees.
This may also be a response to the rise in employer’s National Insurance. That does continue after state retirement age or SRA but employee and self-employed National Insurance stops. Are we seeing a shift towards self-employment again as type of swerve? Or are older people accepting lower wages because they do not personally pay National Insurance? Along the way we see another problem for the ONS as its 16-64 measure was set for an SRA of 65 and it is now 66 and will soon be 67. A workaround would be for them to continue the existing series whilst starting one to reflect the new retirement ages.
Payroll Employment
The downbeat message from the figures above is reinforced by a more timely one.
Payrolled employment decreased by 10,000 employees (0.0%) in September 2025, compared with August 2025;
That feeds into the overall trend here.
Early estimates for September 2025 indicate that the number of payrolled employees was 30.3 million, which is a fall of 0.3% from September 2024; this is equivalent to 100,000 fewer employees.
Although some of the summer was better than we were previously told.
UK payrolled employee growth for August 2025 compared with July 2025 has been revised from a decrease of 8,000 reported in the previous bulletin to an increase of 10,000;
This number is flawed mostly due to the omission of the self-employed but it is timely. Oh and we see yet another area where imputation by the ONS is not all it is cracked up to be,
this is because of the incorporation of additional real time information (RTI) submissions into the statistics, which takes place for every release and reduces the need for imputation.
Oh and they do have a go at muddying the waters further by trying to break the world record for saying “no change” in a short period.
When comparing the number of payrolled employees in August 2025 with the previous month, the figure showed no change, at 0%. This is no change from the early estimate of a 0% change reported in our previous bulletin.
If we look further back we see some upwards revisions so that the previous declines were not quite as much. But another piece of detail is more challenging.
The largest increase was in the health and social work sector, with a rise of 45,000 employees; the largest decrease was in the accommodation and food service activities sector, with a fall of 59,000 employees.
Apart from the obvious signal of the hospitality sector being affected by the rise in employer’s National Insurance we see private-sector jobs being exchanged for public-sector ones with implications for the public finances.
Hours Worked Fall
Another measure we have come to use as a signal looks as though it is turning lower as well.
Total actual weekly hours worked decreased in the latest quarter (June to August 2025) but increased over the year. Both men’s and women’s working hours decreased in the latest quarter but increased over the year.
The quarterly fall was 5 million hours educing the weekly total to 1086.5 million which was up 10 million on a year ago.
Wages
Here we see more stability.
Annual growth in employees’ average earnings was 4.7% for regular earnings (excluding bonuses) and 5.0% for total earnings (including bonuses).
Indeed total pay was up.
This is slightly up from the previous three-month period (4.8%), mainly because the bonuses paid in August 2025 were slightly higher than the bonuses paid in August 2024.
Mostly driven by the public-sector.
Annual average regular earnings growth was 6.0% for the public sector and 4.4% for the private sector; however, the public sector annual growth rate is affected by some public sector pay rises being paid earlier in 2025 than in 2024, causing a base effect.
Being paid earlier is a type of pay rise in itself. But the overall theme here is one of the public-sector doing better than the private-sector.
As to real wages with the rise in inflation we have been seeing that has got rather tight for the private-sectpr. The official view compared to the Bank of England inflation target is this.
Using the Consumer Prices Index excluding owner occupiers’ housing costs (CPI) to adjust for inflation, annual growth in real terms was 0.9% for regular pay and 1.2% for total pay.
The numbers will be weaker if we use the Retail Prices Index or RPI.
Mortgage Rates
The downbeat theme today is reinforced by this.
Average mortgage rates have risen for the first time month-on-month since February as lenders approach the winter with caution.
Following a series of drops in mortgage interest rates, the picture worsened slightly for new and renewing borrowers over the last month, according to financial information service Moneyfacts.
The average rate for a two, or five, year fixed rate stands at about 5%, much lower than the peak of recent years, but still a stretch for many homeowners. ( BBC)
We learn something about the BBC too as mortgage rate falls have been publicised by its economics editor Faisal Islam but rises not so much.
Comment
If we look at today’s data we see that the overall picture over the past year has been weak. But the present one remains unclear. It is not helped by the ongoing mess at the Office for National Statistics.
However, we are continuing our efforts to further improve the response to the survey. Consequently, estimates may be subject to the effect of these further improvements, which may have an ongoing impact on the survey. An increased volatility will remain in the LFS estimates for mid-2023 and throughout 2024, so we would advise additional caution when interpreting survey change measures.
The payroll measure may have stabilised but that comes from the tax numbers or HMRC. It’s numbers have been blamed by the ONS for an issue with the public finances.
This morning, we have published a correction to the Public Sector Finance statistics. This reflects an understatement of the Value Added Tax receipts data supplied by HM Revenue & Customs (HMRC).
It is never a good position when different state bodies start blaming each other.
If we now switch to the Bank of England I expect Governor Andrew Bailey to be thinking of more interest-rate cuts. It seems that he cannot adapt to a world where labour market data is increasingly unreliable. Such thinking is no doubt behind the rally in the UK Gilt market today. Trouble is some policymakers are not so keen.
