UK unemployment rate ticks higher

The UK unemployment rate ticked up to 4.2% in the three months to August from 4.0% in the three months to July, according to figures released on Tuesday by the Office for National Statistics.

This was the ONS’ first month using new methodology to calculate the rate.

The ONS explained that due to increased uncertainty around the Labour Force Survey (LFS) estimates, it was publishing an alternative series of estimates of employment, unemployment, and economic inactivity as experimental statistics.

The experimental figures were derived using growth rates from pay as you earn real-time information and the claimant count for the periods from May to July 2023 onwards.

"This is to provide a more holistic view of the state of the labour market while the LFS estimates are uncertain," it said.

The data also showed that the employment rate declined by 0.3 percentage point to 75.7%, while employment fell by 82,000 following a 133,000 drop in the previous quarter (-207,000 on the old series).

ONS director of economic statistics Darren Morgan said: "Today we have produced a new metric, produced by adjusting our headline survey estimates using robust administrative data sources that we receive from other government departments. This maintains the accuracy of our key statistics.

"This new metric shows that in the latest period the employment rate was down a little, with small rises in the rates for both unemployment and those neither working nor looking for work."

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: "The ONS’ experimental estimates of the labour market data continue to suggest that labour market slack is developing more quickly that the MPC expected in August’s Monetary Policy Report, adding to the evidence the Committee will keep Bank Rate at 5.25% at next month’s meeting."

Victoria Scholar, head of investment at Interactive Investor, said: "There are signs of slack emerging in the labour market with the unemployment rate increasing and the number of people in employment decreasing. This echoes other labour market statistics published last Tuesday which saw job vacancies decline and pay growth drop for the first time since January, highlighting the fragility of the economy as elevated inflation and the Bank of England’s stream of rate hikes take their toll on the jobs market.

"Businesses are clearly becoming more cautious about their hiring plans, while finding jobs is becoming more challenging for workers. At the same time, wage growth remains strong by historic standards, something the central bank will be paying close attention to in terms of its battle against inflation and its monetary policy outlook."