Britain’s rate of unemployment has risen unexpectedly amid mounting signs of a cooling jobs market as the UK heads for a painful and prolonged recession.

Official figures showed the rate of unemployment edged up to 3.6% in the three months to September from 3.5% in the three months to August, while vacancies fell for the fifth time in a row as employers rein in recruitment due to the building economic gloom.

The rate of unemployment also hit 3.8% in September alone, in the highest monthly reading since April.

ECONOMY Unemployment(PA Graphics)

Most economists had expected the three month unemployment rate to remain unchanged.

Wages also continued to be far outstripped by rocketing prices, despite the fastest growth in pay packets for 22 years as the cost-of-living crisis hit hard.

 

The Office for National Statistics (ONS) said average earnings excluding bonuses fell 3.8% when taking account of Consumer Prices Index (CPI) inflation, even with a 5.7% rise in regular pay – the fastest growth since 2000, excluding the pandemic, when the end of furlough skewed figures.

It came as the data showed more people dropped out of the workforce, with a hike in the proportion of people neither looking for work or working.

Over half a million working days were lost to strikes in August and September – the highest two-month total in more than a decade – the ONS also revealed.

The latest jobs market report follows official data last week revealing the economy shrank by 0.2% in the third quarter, putting the UK on course for a lengthy recession amid a punishing cost-of-living crisis.

 

Chancellor Jeremy Hunt said that tackling inflation was his “absolute priority” as he prepares to outline a raft of expected tax hikes and spending cuts in this week’s delayed autumn Budget.

He said: “That guides the difficult decisions on tax and spending we will make on Thursday.

“Restoring stability and getting debt falling is our only option to reduce inflation and limit interest rate rises.”

The wider labour force survey figures show that the number of Britons in unemployment fell by 69,000 to 1.2 million between the second and third quarters, but that the number of people in employment also dropped by 52,000 to 32.7 million.

Economic inactivity increased by 0.2 percentage points quarter on quarter to 21.6%, driven by those aged 16-24 and 35-49 years.

There was also another fall in the number of vacancies, down 46,000 quarter on quarter to 1.2 million, as increasing numbers of employers “hold back on recruitment” amid mounting economic gloom, according to the ONS.

More timely data showed the number of payrolled workers lifted 74,000 or 0.2% between September and October to 29.8 million, but these figures are subject to large revisions.

Sandra Horsfield at Investec Economics said the figures signalled “mounting signs of cracks in the labour market”.

The Bank of England has predicted a possible two-year long recession and expects unemployment to rise as the UK grapples with soaring inflation and falling output.

It has warned that the rate of unemployment is expected to peak at around 6.5%, slightly lower than in 2008 in the economic aftermath of the financial crisis.

Yael Selfin, chief economist at KPMG UK, said: “It is only a matter of time before the recessionary environment spills into the labour market as employers increasingly consider the weakening demand and rising labour costs.”