Britain’s unemployment rate unexpectedly rose, and the number of workers on payrolls dropped by the most since the peak of the pandemic, according to official figures.
The Office for National Statistics (ONS) reported that the unemployment rate increased to 4.4 per cent in the three months to November, up from 4.3 per cent in the three months to October.
The number of payrolled employees was estimated to have tumbled by 47,000 during December to 30.3 million – the biggest drop since November 2020. It follows a revised 32,000 fall the previous month.
But the statistics showed wage growth rose again, with average regular pay surging to 5.6 per cent in the three months to November and outstripping Consumer Prices Index inflation by 3.4 per cent.
UK pay growth increased in November, but the job market showed signs of stress, with concerns about the impact of National Insurance hikes on businesses following Chancellor Rachel Reeve’s first Budget.
After adjusting for inflation, this growth was 3.4 per cent, according to the Office for National Statistics.
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Alice Haine, personal finance analyst at Bestinvest said: “Wage growth was robust in November, but it may dip in December when some employers chose to scrap or reduce Christmas bonuses in reaction to the Chancellor’s new tax measures.
“[They will] batten down the hatches in preparation for the hit coming in April from the increased rate of employer National Insurance and lowering of the wage threshold at which it applies, along with increases to the minimum wage.
“One comforting factor for workers is that wages are still rising faster than inflation, with real terms growth of 2.5 per cent on regular salaries and 2.4 per cent on total pay once inflation is accounted for.
“This means pre-tax headline incomes are stretching further than they did a year ago, but households must remain cautious about spending amid fears that pay growth may slow in the coming months as the effects of the Chancellor’s new tax measures eat into company spreadsheets.”
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Many people may not feel their wages are going further in real terms, however, as frozen income tax thresholds – set to remain in place until at least 2028 – mean they are being drawn deeper into higher rates of tax.
Haine warned that some of Britain’s biggest employers have already issued stark warnings about the impact the Chancellor’s tax rises will have on their businesses and staffing levels.
There are also concerns about the inflationary effect as some businesses look to offset higher employment costs by passing them on to consumers by hiking prices.
Richard Carter, head of fixed interest research at Quilter Cheviot, noted that while the labour market had been relatively steady despite ongoing economic challenges, “the cracks are starting to appear.”
He warned that upcoming changes to employer national insurance contributions could further pressure businesses, with these figures suggesting they may already be taking action to reduce hiring.
He concluded: “While these latest numbers show the UK is not quite yet in dire straits, it is not far off. The Bank of England faces an incredibly difficult balancing act as we move further into 2025.”
The employment rate was 74.8 per cent, which is lower than the previous three months and economic inactivity dropped slightly to 21.6 per cent, down by 0.1 per cent from the previous quarter.
The estimated number of vacancies in the UK decreased by 24,000 on the quarter to 812,000 in October to December 2024. Vacancies decreased on the quarter for the 30th consecutive period
Commenting on today’s labour market figures, ONS director of economic statistics Liz McKeown noted that pay growth picked up for a second consecutive period, which was again driven by strong increases in the private sector. Real pay growth, which excludes the effects of inflation, also increased slightly.
She said: “The number of employees on payroll, drawn from tax data, fell in the three months to November, ” with 47,000 fewer in patrolled employment in December compared to November.
“Meanwhile, our household survey also reported a fall in the number of employees, with a rise in unemployment over the same period.”
However, she said ONS continues to “advise caution when interpreting short-term movements from this survey where volatility remains a challenge, especially for more detailed breakdowns.”
