UK unemployment rises to 4.8% as wage growth cools to three-year low

"UK unemployment has risen to its highest level since the 2021 lockdown, while wage growth has cooled to its weakest pace in more than three years. The figures, released on Tuesday, show the unemployment rate increased to 4.8% in the three months to August, up from 4.7% in the previous quarter - the highest reading since the three months to May 2021. A single-month estimate put joblessness even higher, at 5.3%, marking the steepest rise since October 2020."

"At the same time, regular pay (excluding bonuses) rose by 4.7%, its slowest pace since early 2022, while total pay growth (including bonuses) edged up slightly to 5%. The ONS said that while earnings growth remains well above pre-pandemic norms, momentum has clearly weakened in recent months. The combination of higher unemployment and softer pay growth will provide some comfort to policymakers at the Bank of England, who have been concerned that wage pressures are fuelling persistent inflation."

"Economists said the latest labour market data could strengthen the case for interest rate cuts in 2026, as hiring slows and pay settlements ease. "We think it's only a matter of time before the loosening in the labour market leads to a more marked easing in wage growth," said Ashley Webb, UK economist at Capital Economics. "That would allow the Bank to cut rates from 4% now to around 3% next year.""

UK unemployment rose to 4.8% in the three months to August, the highest since May 2021, with a single-month estimate reaching 5.3%. Regular pay excluding bonuses rose 4.7%, the slowest pace since early 2022, while total pay including bonuses increased 5%. Earnings growth stays above pre-pandemic norms but momentum has weakened. Higher unemployment combined with softer pay growth reduces wage-driven pressure on monetary policy. Inflation has been 3.8% for two months and is expected around 4% in September, above the 2% target. The labour market slowdown and easing pay settlements could support interest rate cuts in 2026. Younger workers have been hit hardest while employment among over-65s reached a record high.

Read at Business Matters