UK unemployment edges up to 4.2% as ‘experimental’ calculation used

ONS introduces new process which uses tax data and benefit claims

City of London on a cold, snowy winter's day with the Thames, Tower of London and Shard in view
Photo by Robert Bye on Unsplash


The unemployment rate in the United Kingdom rose to 4.2% in September from 4% the month before, according to the Office for National Statistics.

The figure suggests the economy is holding up marginally better under the weight of higher interest rates than consensus forecasts suggested.

The deviation is not likely to be enough to change the Bank of England’s current thinking on the path of interest rates over the coming months.

Notably, the waters have been slightly muddied by a change in how the ONS calculates the figure. It has switched to a new experimental process which uses tax data and benefit claims to derive a figure, instead of the usual jobs market survey.

It is likely to take several more iterations to draw conclusions over whether the methodology change has impacted the final figure.  

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Neil Birrell, Premier Miton’s chief investment officer, commented: “Under the new methodology the September UK employment data came in much as expected. After slightly weaker retail sales numbers, the data on the economy is still ambiguous.

“It’s hard to believe that sticky inflation and higher interest rates won’t have more impact on the surprisingly robust economy. Focus is now all on the upcoming round of central bank policy decisions.”

Victoria Scholar, head of investment at Interactive Investor said: “The ONS decided to publish an alternative series of estimates of labour market statistics because of the uncertainty around the Labour Force Survey (LFS) due to challenges in maintaining response rates. 

“There are signs of slack emerging in the labour market with the unemployment rate increasing and the number of people in employment decreasing.”

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“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,” Scholar continued. “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.”

Jake Finney, economist at PwC UK, added: “The latest experimental figures released by the ONS show a broadly similar picture to last month’s estimates based upon the Labour Force Survey. The UK labour market remains tight but is cooling, with unemployment rising, vacancies declining, and pay growth slowing.

“However, annual pay growth remains high at 7.8% in the three months to August 2023. Ultimately, we expect that pay growth will remain strong while the labour market runs hot. The unemployment-to-vacancies ratio, a key indicator of labour market slack, is still around one-fifth lower than its pre-pandemic levels.”

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