UK unemployment rate unexpectedly drops to 4.7%! Positive employment data ahead of the budget boosts expectations for a Bank of England rate hike in November

Zhitong Finance APP noted that as the UK unemployment rate declined and employers increased hiring, official data gave Chancellor John Healey an unexpected boost ahead of next week's key budget statement.

Tax data showed that the number of salaried employees increased by 13,000 last month, contrary to economists' expectations of a decrease of 8,000. The August figures were significantly revised upwards, from a reduction of 26,000 to an increase of 1,000.

In the three months to August, the unemployment rate fell to 4.7%, the lowest since July 2025. However, the Office for National Statistics (ONS) cautioned that this estimate is still affected by data collection quality issues.

After the data was released, the pound extended its gains and rose to 1.3352 US dollars.

However, this data could still be further revised, and the state of the labor market continues to divide economists. Despite positive wage data, the ONS also reported that job vacancies fell by 21,000 in the three months to September.

The UK Labour government is facing a tricky budget statement on October 28. Although economic growth has far exceeded expectations this year, companies have been expanding without increasing hiring. Artificial intelligence, employment taxes, and the volatility caused by the Middle East conflict are all blamed as reasons.

There are already early signs that energy strains triggered by the Middle East conflict may be feeding into UK workers' pay demands. The ONS indicated that pay growth excluding bonuses in the private sector—a key inflation pressure indicator closely watched by Bank of England policymakers—accelerated for the first time since 2024, rising from 2.9% to 3% in the three months to August.

However, this is not usually a period for wage renegotiation, and Bank of England officials are looking ahead to early 2027.

So far, concerns about the vulnerability of the UK labor market have led the Bank of England to postpone rate hikes. However, soaring energy costs and unexpectedly strong economic resilience are bringing officials closer to a rate increase at the November 5 meeting.