This morning has brought some disappointing economic news from my home country the UK as we have reached a threshold we would rather not.
The UK unemployment rate for people aged 16 years and over was estimated at 5.0% in July to September 2025. This is up in the latest quarter and above estimates of a year ago.
The rise in unemployment is something that I predicted just over a year ago on October 31st.
As you can see this is both contractionary ( fewer jobs) and inflationary.
It has turned out to be both with unemployment at 5% and the CPI inflation measure at 3.8%. Back in the day people used to add them together to give a Misery Rate which for the UK is now 8.8%. Overall this is a pretty cleat case of economics 101 which is that such an unemployment rate is a direct consequence of doing this.
Businesses warned that Reeves’ £25bn increase in national insurance on employers could chill hiring. The OBR forecast that bosses would pass on 76 per cent of the tax rise to workers through lower wages. ( Financial Times)
It was not the only move in the last UK Budget which contributed to this as the well above inflation rise in the National Living Wage was in isolation welcome but via its impact on labour costs was also likely to drive unemployment higher. As was the Employee Rights Bill. So I am afraid that the Budget last year sang along with Britney.
With a taste of your lips, I’m on a rideYou’re toxic, I’m slippin’ underWith a taste of a poison paradiseI’m addicted to youDon’t you know that you’re toxic?And I love what you doDon’t you know that you’re toxic?
Employment
The news here is disappointing too and let me start with the most timely measure.
Payrolled employment decreased by 32,000 employees (0.1%) in October 2025, compared with September 2025; figures for October should be treated as provisional estimates and are likely to be revised when more data are received next month.
Plus last month was worse than originally thought.
UK payrolled employee growth for September 2025 compared with August 2025 has been revised from a decrease of 10,000 reported in the last bulletin to a decrease of 32,000; this is because of the incorporation of additional real time information (RTI) submissions into the statistics, which takes place every publication and reduces the need for imputation.
This means that there has also been rather an acceleration in the annual rate of decline.
Early estimates for October 2025 indicate that the number of payrolled employees was 30.3 million, which is a fall of 0.6% from October 2024; this is equivalent to 180,000 fewer employees.
The numbers above are flawed by the way they do not include the self-employed but they are more timely. They have become more of a signal because of the problems ( mostly a sharp decline in the response rate) that have affected the main Labour Force Survey of the Office for National Statistics or ONS. Before we move on from it the detail more provide another sign of the problems facing the public finances.
The largest increase was in the public administration and defence sector, with a rise of 16,000 employees; the largest decrease was in the wholesale and retail sector, with a fall of 71,000 employees.
If public-sector employment is growing as it falls overall then this is something else which is toxic for the public finances.
Switching to the official series we see that the overall trend is now similar.
Over the last year, level estimates of the number of employees from the LFS have converged with those from the RTI. This is likely at least in part because of the improvements we have made to the LFS since January 2024.
Although whilst any improvement is welcome as you can see it is not much.
The achieved sample, including imputed cases (the dataset size), has increased from 74,186 individuals in April to June 2025, to 75,757 individuals in July to September 2025,
My fear is that they are whether explicitly or implicitly aiming at the tax numbers.In terms of what they tell us. In quarterly terms employment fell by 22,000.
The UK employment rate for people aged 16 to 64 years was estimated at 75.0% in July to September 2025. This is down in the latest quarter but above estimates of a year ago.
Hours Worked
These provide another check on the state of play and after holding in for a while they have turned lower too.
Total actual weekly hours worked decreased in the latest quarter (July to September 2025) but increased over the year. Both men’s and women’s working hours decreased in the latest quarter and men’s working hours decreased while women’s working hours increased over the year.
Average actual weekly hours worked decreased in the latest quarter and over the year.
The annual comparison looks set to turn negative because the quarterly fall of 6.4 million hours compares to an annual rise of 1.8 million hours. If you consider that the population and labour force is rising then it is worse than it initially looks.
Average Earnings
The picture here is more complex.
Annual growth in total earnings (including bonuses) was 4.8% in July to September 2025. This is slightly down from the previous three-month period (5.0%). It was last lower than 4.8% in April to June 2025, when it was 4.6%.
Maybe total earnings growth has plateaued. The catch comes when we look at the structure of this.
Annual average total earnings growth was 6.8% for the public sector in July to September 2025. This is up on the previous three-month period when it was 5.8% and again affected by base effect. Annual average total earnings growth was 4.4% for the private sector, down on the previous three-month period (4.8%). It was last lower than 4.4% in January to March 2021, when it was 3.9%.
Now we see that the numbers have been boosted by the public-sector pay rises so that if you try to allow for this we see that not only is there a pivot again challenging the pubic finances. But private-sector pay growth does look to be weakening. That I think is also confirmed by the breakdown for regular pay.
After the public sector, the wholesaling, retailing, hotels and restaurants sector showed the strongest regular annual growth rate.
That suggests that the pay rises have been driven by the public-sector and the National Living Wage and thus other wage growth has been less strong.
Here is one measure of real pay growth.
Annual real total pay growth (using CPI) was 1.0% in July to September 2025. This is down from 1.3% in the previous three-month period. It was last lower than 1.0% in May to July 2023, when it was 0.6%.
If you use the Retail Prices Index or RPI then real wage growth is now roughly flat.
Comment
There is little cheer to be found here I am afraid and there is an irony in the impact of last year’s Budget becoming more explicit as we wait for this year’s edition.This adds to the reality that more tax rises are again on the menu. Or if you prefer the relative and absolute rally in the UK Gilt or government bond market gives it away. The 0.4 rise in the UK government bond future to 93.61 has reduced the ten-year yield to 4.4% as markets are influenced by what they think the Bank of England will do in response to a 5% unemployment rate.
The UK Misery rate if you use the RPI has risen to 9.5%.
