This is a rise from 4% in the previous quarter and is higher than the estimates made by the Office for National Statistics (ONS) a year ago.
Due to using smaller sample sizes, the ONS has warned there will be “increased volatility” in the data. It noted that additional caution should be applied to any market data about employment for this period.
While unemployment has crept up, the economic inactivity rate for those aged between 16 and 64 years old slowed to 21.8%. The measure of people of working age who are not looking for work or starting a new job is lower than the last quarter and not as high as ONS estimations a year ago.
The annual growth rate of employees’ earnings slowed to 4.8% from July to September, the lowest level since April to June 2022, when pay grew at 4.7%.
In real terms, considering the Consumer Prices Index (CPI) measure of inflation, the annual growth rate of wages was 1.9% – the same as between June and August this year.
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For total earnings, which factors in overtime and bonuses, there was a 4.3% growth, which is affected by one-off payments to the civil service in July and August 2023.
The slow unemployment rate levels are due to a cautious approach from employers, according to Susannah Streeter, head of money and markets at Hargreaves Lansdown.
Indeed, the tightening of businesses’ purse strings may continue following the hike of National Insurance contributions (NICs) announced in the Autumn Budget.
Streeter also said the current climate of wage growth has improved the likelihood of the Monetary Policy Committee (MPC) voting for another cut to the base rate.
Streeter added: “The chances of the Bank of England cutting rates next month remain low but have crept up slightly given the weaker labour market picture.
“The pound has fallen back further against the dollar, trading at just over $1.28, at three-month lows. It’s been knocked by the strength of the greenback amid expectations that Trump’s trade policies will be inflationary.’’
‘May look back at this as a golden age’
Meanwhile, Sarah Coles, head of personal finance at the investment firm, said due to pay rises remaining ahead of the rate of inflation – which surprisingly dropped to 1.7% in October – “we may well look back on this as a golden age”.
Coles said: “Darker days aren’t set to descend imminently. From here, wages are actually likely to climb more quickly for a while. The Budget pledged public sector wage rises and minimum wage hikes, so the Office for Budget Responsibility has boosted its forecast for wage growth by a percentage point this year to 4.7%.
“This is exceptionally good news for those on the lowest wages – particularly young people. Next year isn’t looking bad either, with a forecast rise of 3.5% – again better than had been expected, thanks in part to more spending.
“However, from 2026 onwards, the Budget is expected to have a sting in its tail, because the hike in employers’ National Insurance is expected to mean employers hold back pay rises, to claw back some of the extra costs the tax has presented them with. The OBR expects an average of 2.25% wage growth for the rest of the forecast.”
Coles added: “Given that inflation expectations have also been pushed up by the Budget, and it’s forecast to be over 2% by 2026, it’s going to mean that in a couple of years’ time, we’re likely to end up having to stretch our money as far as possible to make ends meet again.
“It… means it’s vital that we make hay while the sun shines. This is the time to revisit our overall financial position, and make sure we have the emergency savings in place for when times get tougher.
“We also need to look further ahead and see if there’s more we can do to get our pensions on track and invest for the future. The stronger we can be when pay misery strikes, the better.”
