UK Unemployment Rate Climbs to 4.8% in August, Exceeding Market Expectations

Unemployment Rises to Four-Year High

The United Kingdom's unemployment rate saw an unexpected increase, reaching 4.8% in the three months leading up to August 2025. This figure, released by the Office for National Statistics (ONS), represents a rise from the 4.7% recorded in the three months to July and surpassed market expectations, which had anticipated the rate to remain unchanged. The latest data indicates the highest unemployment level since the three months to June 2021.

Despite the rise in the jobless rate, the number of employed individuals did see an increase of 91,000, bringing the total to 34.2 million. This growth was primarily driven by gains in part-time roles and among employees aged 65 and over. However, this marks a slowdown compared to the 232,000 increase observed in the preceding three-month period.

Key Labour Market Indicators Show Mixed Signals

Further details from the ONS report highlight a complex picture of the UK labour market:

• Payrolled Employees: The number of payrolled employees in the UK fell by 93,000 between August 2024 and August 2025. Early estimates for September 2025 suggest a further monthly decline of 10,000, bringing the total to 30.3 million.
• Job Vacancies: The estimated number of job vacancies continued its downward trend, falling by 9,000 (1.3%) to 717,000 in the July to September 2025 period. This marks the 39th consecutive period of decline in vacancies.
• Wage Growth: Annual growth in regular earnings, excluding bonuses, slowed slightly to 4.7% in the three months to August, down from 4.8% in July, aligning with market consensus. Conversely, total pay growth, including bonuses, surprisingly accelerated to 5.0% from 4.8%, exceeding expectations.

Economic Context and Contributing Factors

Economists and analysts point to several factors contributing to the loosening labour market. The rise in unemployment was notably driven by an increase in joblessness among younger people. Concerns have been raised regarding tax increases announced by Chancellor Rachel Reeves last year and implemented in April, which have reportedly made it more expensive for employers. Low employer confidence and broader cost concerns are also believed to be weighing on hiring activity.

The Bank of England faces the challenge of balancing a loosening jobs market with persistent inflation, which stood at 3.8% in August, remaining above its 2% target. The unexpected rise in unemployment and the mixed wage growth figures could influence future monetary policy decisions, with some investors now considering the possibility of an interest rate cut.