UK unemployment falls unexpectedly to 4.7% ahead of budget

Analysis

Why This Matters

The drop in unemployment and rise in payrolls could give the government some room in the upcoming budget, but persistent above-inflation wage growth may keep pressure on the Bank of England to hold interest rates.
Falling vacancies suggest the labour market is cooling, posing a risk for workers seeking new roles.
The data directly influences fiscal and monetary policy decisions in the coming weeks.

Background

The UK economy has been navigating a period of high inflation and sluggish growth. The Bank of England has raised interest rates to combat rising prices, and wage growth has been a key metric in assessing underlying inflationary pressures. The Office for National Statistics publishes monthly labour market data that informs policymakers and markets.

Key Perspectives

Economists: The unexpected fall in unemployment defied their predictions of a rise to 5%, suggesting the labour market remains tighter than anticipated. They will watch wage growth data closely for signs of persistent inflation. Bank of England: Rate-setters will note that average pay growth, at 3.7%, is still above the 3.1% inflation rate, which could reinforce caution about cutting interest rates too soon. Workers and job seekers: While the headline unemployment figure is positive, the drop in vacancies to pandemic-era lows signals a tightening job market, potentially making it harder for those out of work to find new positions.

What to Watch

The Bank of England's next interest rate decision and any commentary on wage pressures.
The 28 October budget for government measures that may affect employment or labour supply.
Further ONS jobs data to see whether the vacancy decline continues or stabilises.

Checked

10 claims in this story checked against 1 source: 7 supported.

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SupportedUK unemployment fell unexpectedly to 4.7% in the three months to August, down from 4.9%Business | The Guardian: “Unemployment in the UK fell unexpectedly in the three months to August, to 4.7% from 4.9%.”
SupportedPayrolled employees rose by 13,000 between August and September, to 30.3 millionBusiness | The Guardian: “the number of payrolled employees rose by 13,000 between August and September, to 30.3m.”
SupportedJob vacancies fell by 21,000 to 691,000 in the three months to September, the lowest since 2021 during the Covid pandemicBusiness | The Guardian: “the number of job vacancies fell by 21,000 to 691,000 in the three months to September, the lowest since 2021 during the Covid pandemic.”
Not in the sourcesThe ONS figures were released todayBusiness | The Guardian
Partly supportedThe figures provide a brighter backdrop to the 28 October budgetBusiness | The Guardian: “which provide a backdrop to the budget on 28 October”
SupportedEconomists had expected the unemployment rate to rise to 5%Business | The Guardian: “Economists had expected the unemployment rate to rise to 5%.”
SupportedAverage wage growth including bonuses slowed to 3.7% from 3.9%Business | The Guardian: “Average wage growth, including bonuses, has fallen to 3.7% from 3.9%.”
SupportedExcluding bonuses, average pay growth rose to 3.7% from 3.6%Business | The Guardian: “Stripping out bonuses, average pay growth rose to 3.7% from 3.6%.”
SupportedAverage pay growth remains above the headline inflation rate of 3.1%Business | The Guardian: “Average pay growth remains above the 3.1% headline rate of inflation”
Partly supportedBank of England interest rate setters fear higher-than-expected inflation could translate into wage awards that fuel further price risesBusiness | The Guardian: “which is of concern to Bank of England interest rate setters, who fear higher-than-expected inflation will translate into higher wage awards, fuelling future prices rises”