UK unemployment has increased and private sector pay growth cooled, according to fresh data published by the Office for National Statistics on Tuesday, which raised hopes of more interest rate cuts from the Bank of England.
The unemployment rate unexpectedly rose to 4.8% for the three months to August, up from 4.7% in the three months to July, where economists had expected it to remain.
Average wage growth, including bonuses was up 5.0% in the three months to August, from 4.7%, while pay growth excluding bonuses fell to 4.7% from 4.8%. the market expecting it to have remained at 4.8%.
These earnings figures were boosted by the annual NHS staff pay award.
If excluding public sector wages, pay growth excluding bonuses fell to 4.4% from 4.7%, below economists' forecasts of 4.5%.
Vacancies fell for the 39th consecutive period, at 717K in the three months to September, from 728K in August.
Employment rose by 91K in the three-months to August, down from 232K in July, below the consensus forecast of 125K.
"After a long period of weak hiring activity, there are signs that the falls we have seen in both payroll numbers and vacancies are now levelling off," says ONS director of economic statistics Liz McKeown.
"We see different patterns across the age ranges with record numbers of over-65s in work, while the increase in unemployment was driven mostly by younger people.
"Wage growth slowed in the private sector to its lowest rate in nearly four years, but public sector pay growth increased, reflecting some public sector pay rises being awarded earlier than they were last year."
Economist James Smith at ING said report suggests the Bank of England's interest rate cuts are "not done yet" as the longstanding issue of private sector wage growth is "finally showing signs of falling more rapidly", down to 4.4% from 6% around the turn of the year.
"The news is even better if you look at the three-month annualised rate of private sector pay growth, which now sits at 2.4%.
"That suggests there’s a good chance now that the annual rate will fall below 4% by November."
He notes that this is "already baked into the Bank’s forecasts", though as wage growth has consistently come in higher than most economists had expected over recent years, seeing these forecasts materialise "would go some way towards alleviating concerns about the upside risks to inflation".
Smith said a rate cut at the BoE's November meeting "looks unlikely", but December "is in play" as long as further falls in wage growth and softer services inflation follow.
"However, we think February is more likely, giving the Bank an extra month’s worth of data to look at before acting. We expect three cuts in 2026, which is more than markets are currently pricing."
Thomas Pugh, economist at RSM UK, said pay growth "remains too strong to prompt the MPC into a rate cut next month".
He said the labour market "appears to still be weakening with the unemployment rate ticking up and vacancies falling. However, the pace of deterioration is slowing, and the revised payrolls picture looks much healthier now."
Similarly, Rob Wood at Pantheon Macroeconomics said the slower wage growth combined with an unemployment rate rise "gives today’s labour market release a dovish tint" and markets will "rightly price a greater chance of an MPC rate cut by year-end after these data as rate setters have placed a lot of focus on wage growth and inflation to justify another cut".
He felt the underlying story, though, "is that the labour market is beginning to stabilise".
** UPDATE: Adds commentary **