Last week saw the publication of the latest set of ONS labour market data. Once again, the ONS has said that the Labour Force Survey (LFS) data is likely to be subject to what it describes as “further improvements” and so its data should be treated with “additional caution”. The disparity between this data set and the HMRC Real Time Indicators data appears to have widened further in October, which must cast even more doubt on the ONS’s ability to accurately estimate how many people are in work in the UK and, by definition, on its estimates of baseline productivity. Having said that, assuming consistent ONS inaccuracy, one can draw various conclusions from this latest set of data.

1. The labour market has continued to weaken.
2. Unemployment is up and vacancies are down.
3. This is partly down to increased worker participation and slightly lower inactivity.
4. Total hours worked was apparently down 0.5% in Q3 2025.
5. Somewhat ironically, given that output is likely to have risen in Q3, this means that productivity improved throughout the quarter, coinciding nicely with the OBR’s imminent productivity forecast downgrade to be revealed in the budget statement.

So, with unemployment rising to 5% and wage growth continuing to slow (private sector settlements now down to 3%), it now looks like a near certainty that rates will fall at the December MPC meeting to 3.75%. In my view, the committee should have cut a week ago, but better late than never.

In summary, these data show a weakening labour market and are consistent with lower rates. Indeed, considerably lower rates in my view, which I expect to be down at about 3% during the course of 2026. Lower interest rates are what I think catalyse lower saving, higher spending and better growth outcomes for the UK economy in 2026 and beyond.

Finally, it’s worth mentioning that the causes of higher unemployment are, in my view, a combination of the initial implications of the AI industrial revolution, combined with the impact of the budget changes introduced in October last year, which increased the costs of employing people and were always going to result in a lower demand for labour.