Rising unemployment adds to pressure on policymakers ahead of Thursday decision
Unemployment in the UK nudged higher in October, while annual pay growth remained stronger than expected, according to the latest labour market figures.
The unemployment rate rose to 5.1% in the three months to October 2025, up from 5% in September and in line with market forecasts of 5.1%. In the same August to October period, the estimated employment rate slipped by 0.3 percentage points to 74.9%, while the economic inactivity rate edged down by 0.1 percentage points to 21% compared with May to July 2025.
The number of payrolled employees continued to fall. Estimates show a decline of 149,000 (0.5%) between October 2024 and October 2025, and a drop of 22,000 (0.1%) between September and October 2025. Over the August to October period – the window aligned with the Labour Force Survey – payrolled employee numbers were down by 113,000 (0.4%) year-on-year and by 24,000 (0.1%) over the quarter.
Total earnings growth remained well above inflation forecasts. Annual growth in total earnings was 4.7% in the latest three‑month period, slightly below 4.8% previously but above market expectations of 4.4%. After adjusting for inflation using the Consumer Prices Index, regular pay rose by 0.9% in real terms and total pay by 1%.
We’ve published the latest labour market figures.
— Office for National Statistics (ONS) (@ONS) December 16, 2025
Commenting on today’s figures, ONS Director of Economic Statistics Liz McKeown said: (quote 1 of 3) 💬
Read the latest Labour market overview ➡️ https://t.co/xbKU1Ff47P pic.twitter.com/nXZT956hz2
“The rate of UK unemployment continued to edge up during October, as the confidence sapping budgetary pre-amble took its toll on the UK jobs market,” said Isaac Stell (pictured right), investment manager at non-advisory investment broker Wealth Club. “With all the noise, speculation and damaging sentiment, it is no surprise that UK businesses put off hiring in October.”
“These figures should come as no surprise to the Chancellor and the Government, businesses need an environment of confidence in order to thrive, it is clear to anyone that this has been lacking in the recent past.
“Despite unemployment ticking up, pay growth came in far higher than expected, good news for those in employment with the Christmas shopping season firmly underway.”
For mortgage professionals, the combination of a softer labour market and resilient wage growth adds complexity to the outlook for borrowing costs. Rising unemployment may weigh on demand for new borrowing and raise concerns about affordability for some households, while continued real pay growth supports incomes and may offer some cushion against higher rates and living costs.
Against this backdrop, market attention is likely to focus on the Bank of England’s upcoming policy decision and its assessment of how labour market slack and wage pressures interact with still-elevated inflation.
“These latest figures coupled with very weak GDP growth last week will give the Bank of England sufficient reason to cut interest rates at its meeting on Thursday,” Stell said.
“This is despite inflation sitting stubbornly at 3.6% as of October. Further rate cuts from there onwards, however, will become progressively more difficult to justify as the competing forces vie for importance.”
Any move by the Monetary Policy Committee this week will feed through into funding costs, product pricing and stress‑testing assumptions across the mortgage market. A cut in Bank Rate could provide some relief for borrowers facing refinancing in 2026, while a hold would keep attention on lenders’ appetite for risk and the resilience of households exposed to higher-for-longer borrowing costs.
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