UK unemployment rate unexpectedly falls to 4.7%! Pre-budget employment data brings good news, expectations of a Bank of England rate hike in November rise.

Note that as the UK unemployment rate fell and employers increased hiring, official data delivered an unexpected boost to Chancellor John Healey ahead of next week's crucial Budget. Tax data showed the number of employees on payroll rose by 13,000 last month, contrary to economists' expectations of an 8,000 decline. The August figure was sharply revised upward, from a drop 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, though the Office for National Statistics cautioned that the estimate remains affected by data collection quality issues. After the data was published, the pound extended its gains, rising to $1.3352. However, the data may still be revised further, and the state of the labor market continues to divide economists. Despite the positive wage data, the ONS also said job vacancies fell by 21,000 in the three months to September. The UK Labour government is facing a tricky Budget on October 28. Although economic growth has far exceeded expectations this year, businesses have been expanding without adding to headcount. AI, employment taxes and volatility stemming from the Middle East conflict have all been blamed. There are early signs that energy tensions triggered by the Middle East conflict may be feeding into UK workers' wage demands. The ONS said private-sector pay growth excluding bonusesan indicator of inflationary pressure closely watched by Bank of England policymakersaccelerated for the first time since 2024, rising from 2.9% to 3% in the three months to August. However, this is not the usual season for renegotiating pay, and Bank of England officials are more focused on early 2027. To date, the Bank of England has held off on raising rates out of concern over the fragility of the UK labor market. However, soaring energy costs and unexpectedly strong economic resilience are bringing officials closer to a rate hike at their November 5 meeting.