Unemployment rate increases and real wages fall as economy heads for recession

New data shows that unemployment has inched higher and while wages have risen faster than expected, it’s not enough to keep up with inflation

The unemployment rate in the UK has increased, fresh data from the Office for National Statistics shows, as the economy heads into what could be a lengthy recession. Unemployment inched higher to 3.6 per cent in the three months to September, up from 3.5 per cent, as job vacancies fell for a fifth month in a row and people continue to exit the workforce.

Meanwhile, wages have risen faster than expected. Total pay, including bonuses, rose by 6% per year from July to September while regular pay increased by 5.7% up from 5.4%. The bad news is that wages haven’t risen fast enough to keep up with the current inflation rate, which hit 10.1% in September.

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Despite this, the number of people on company payrolls continued to rise in October to 834,000 above the pre-pandemic levels. Total weekly hours worked dropped to 1.039 billion in July to September 2022, down 4.2 million in the previous month and 13.3 million below pre-pandemic levels.

The figures also revealed nearly nine million people were not currently working or looking for work, higher than before the pandemic. Around 21.6% of people were classed as economically ‘inactive’, up from 20.2% in February 2020.

The ONS said this was driven by a ‘record high’ number of people who are ‘long-term sick’- the rise in people with long Covid is one factor, as is home working during the pandemic. Darren Morgan, head of labour and economic statistics said: "The proportion of people neither working nor looking for work has risen again.

“August and September saw well over half a million working days lost to strikes, the highest two-month total in more than a decade, with the vast majority coming from the transport and communications sectors. Job vacancies continue to fall back from their recent peak, with increasing numbers of employers now telling us that economic pressures are a factor in their decision to hold back on recruitment.”

Yael Selfin, chief economist at KPMG UK, warned it was only a matter of time before ‘recessionary environment spills into the labour market’, driving up the unemployment rate even higher. The group expects unemployment to peak at around 6% by 2024.