The UK jobs market is cooling as unemployment rose to 5.0% in the three months to September 2025, the highest level since early 2021. Average regular earnings growth slowed to 4.6%, while job vacancies, though steady for now, remain well below their mid-2022 peak.
Industry experts share their views on what this means for advisers and their clients below:
Danni Hewson, AJ Bell head of financial analysis, comments on the latest UK jobs figures:
“There’s been a lot of talk about the reliability of ONS jobs data but when you consider a host of business surveys, earnings updates from recruitment companies, payroll numbers from HMRC and concerns about a reduction in hiring from the Bank of England, it’s hard to see anything but a clear picture of a faltering labour market.
“A lot of blame will be placed on the chancellor’s decision at the last Budget to hike national insurance for businesses whilst simultaneously upping the national living wage. That tax on jobs has undoubtedly forced some businesses to pare back their workforce or to reconsider hiring more staff, at least until the dust settles on the upcoming Budget.
“Looking at the increase in redundancies over the three months to September tells you a great deal and partly dispels the notion that the jobs rout was stabilising, especially when you factor in falling payroll numbers.
“That relentless fall in job vacancies has finally been arrested, perhaps thanks to a seasonal uptick as firms take on staff for the Christmas period. But the number of unemployed people per vacancy now stands at 2.5 – a level not seen outside the pandemic since 2015.
“The increased cost of employing people has pushed many firms to consider new ways to deploy technology, either through automation or by investing in AI, which one-in-six firms told the CIPD they expect will lead to further job cuts next year. And with a softening labour market the pressure on firms to offer staff bumper pay increases has abated and earnings growth has slowed, particularly in the private sector.
“Market expectation of a December rate cut has jumped to over 70% on today’s jobs figures, though until we see all the chancellor’s workings in black and white, no one is taking anything for granted.”
Rob Morgan, Chief Investment Analyst at Charles Stanley, said:
“The UK employment market is now weakening more markedly, reflecting anaemic economic growth, rising employment costs, and business uncertainty.
“The unemployment rate stepped up to 5% in the three months to September from 4.8% previously, the highest since 2021, while payrolled employment fell by a worryingly large 32,000 in October.
“Meanwhile, surveys suggest that hiring intentions are around the weakest since the pandemic with bosses deterred by the higher costs of employment. Yet there are now signs that job vacancies at least have bottomed out with early estimates suggesting there was a small increase in August to October.
“While jobs are hard to find for those out of work, pay settlements are still relatively robust for employees, especially in the public sector. Average earnings rose 4.6% in the three months to September, down from 5.9% earlier in the year, while total pay including bonuses at 4.8% for the latest period. Still, there is now a clear moderating trend in wage settlements more in tune with the rest of the labour market metrics.
“Overall, the employment market paints a picture of business caution and prudence, reflective of a UK economy decelerating into the year-end following a reasonably positive first half.
“There is now the prospect of the upcoming Budget offering a modicum of certainty to employers and the opportunity to fully scrutinise the lay of the land. There may also be some positives to take in sectors such as infrastructure and housebuilding in terms of offering growth opportunities.
“Yet the elephant in the room is the rising burden of tax and legislation around employment which seems to run counter to the objective of a vibrant and flexible jobs market that could help restore economic momentum.
“The weakening jobs market adds weight to the argument that the economy is slowing to a significant extent and that interest rates should come sooner rather than later. Barring an inflation surprise, or a curveball from the Autumn Budget, a December base rate cut from the Bank of England looks fully in play at this point.”
Derrick Dunne, CEO of YOU Asset Management, comments on this morning’s ONS wages and employment data:
“This morning’s employment data gives the clearest signal yet that the economy is on a path to a significant slowdown, with the unemployment rate hitting a post-pandemic high of 5%. Private sector wage growth is also slowing – now just ahead of inflation by 0.8%. Public sector pay growth is still growing at 6.6% however – suggesting a not insignificant gap is forming.
“There can now be little doubt that tax measures in last year’s Budget have pushed unemployment up, with falls in the number of workers on payroll in most of the last 12 months. The big question now is whether fiscal measures to be announced in two weeks’ time will apply further pressure to businesses and workers.
“With that in mind, the Bank of England’s decision to hold its base rate last week – born of persistent hesitancy over inflation – already looks like a mistake. The vote was finely balanced, but there’s no getting around the fact that these labour market figures are not good news and cuts will be needed to stimulate growth.
“The jobs market now looks the most vulnerable it has been since the pandemic. Unless Chancellor Reeves announces major inflationary tax measures on 26 November, this is the clearest signal yet that the base rate should come down in earnest to support employment – likely beginning with the last MPC meeting of 2025 in December.
“Anyone who is unsure about how this could impact their personal finances should speak to a financial planner.”
Isaac Stell, Investment Manager at Wealth Club said:
“There will be no pre-budget comforts that can be taken from today’s employment data as the un-employment rate hits its highest level since May 2021. This self-inflicted wound rather than heeling continues to weep.
Not only has the unemployment rate risen, but wage growth, albeit still rising ahead of inflation continues to shrink. There can be no doubt that the fiscal levers pulled by the Government and the Chancellor have significantly contributed to these figures and the responsibility lies at their feet.
With speculation around the Budget reaching fever pitch, businesses have postponed hiring and are less likely to commit to any form of investment until they know where the economic land lies. The stakes couldn’t be higher for the government and with further tax rises guaranteed at the budget, the fiscal landscape for employers and employees looks to be on ever shakier ground.”
Richard Carter, head of fixed interest research at Quilter Cheviot:
“An early Christmas present could come in the form of an interest rate cut from the Bank of England following a rise in unemployment and a softening in wage growth. The monetary policy committee had a tight 5-4 split on whether to hold or cut rates at last week’s meeting, with Andrew Bailey’s deciding vote erring on the side of caution.
“Today’s figures from the Office for National Statistics show wage growth pressures, albeit still relatively high, are slowly easing. Annual growth in regular earnings excluding bonuses saw a decline to 4.6% compared to 4.7% last month, and total earnings including bonuses fell to 4.8% compared to 5%. Any further signs of easing in the next labour market print could sway a few more on the committee to cut on the 18th December.
“Meanwhile, the UK unemployment rate has jumped up, rising to 5% in July to September 2025 from 4.8% in the prior quarter. Estimates for payrolled employees dropped by 117,000 between September 2024 and September 2025 and decreased by 32,000 on a monthly basis. Initial estimates for October also show the number of payrolled employees decreased by 32,000 on the month, although the ONS has made several revisions to its early estimates in recent months, so this figure will need to be taken with a pinch of salt.
“With the Chancellor’s budget now just two weeks away, many businesses will have shelved any major hiring plans. Having already faced a significant rise in national insurance costs earlier in the year, they will likely be nervous to make any real commitments until they know whether further costs are heading their way.
“The BoE will have time to assess the market’s reaction to the budget, and will receive another labour market print prior to its next interest rate decision. While today’s figures make a rate cut appear slightly more nailed on, much could still change in the coming weeks.”
Frances Lewis, Partner at Osborne Clarke, said:
“The latest rise in unemployment is a reminder of how sensitive the UK labour market is to changes in employment taxation. When the cost of hiring goes up, businesses inevitably become more cautious – and that feeds directly through to job creation. Changes to employment taxation can also affect whether workers are paid through payrolls and can lead to an increased use of self-employment alternatives such as freelancing and contracting. The Government faces a difficult balancing act: increasing National Insurance contributions may raise revenue in the short term, but if it discourages hiring, it risks eroding the very tax base that it relies on. Stability and predictability in employment taxes are what give businesses the confidence to invest and grow.”
