Chancellor John Healey has received a boost ahead of next week's Budget after UK unemployment fell to its lowest level since July last year, though the data raises the prospect of a Bank of England rate rise in November.
Deutsche Bank's chief UK economist Sanjay Raja said more workers in employment means more tax receipts for the Treasury, easing some of the fiscal pressure bearing down on Healey as he prepares his statement.
But Raja warned the data also points to a labour market with less slack than previously assumed, making a November rate hike increasingly likely unless tomorrow's inflation report delivers a significant miss.
The jobless rate slipped to 4.7% in the three months to August, confounding expectations of a rise, according to figures released this morning by the Office for National Statistics.
Raja said stronger economic growth had finally fed through to hiring, with firms cautiously adding workers as Budget uncertainty fades.
The fall in unemployment was driven largely by a drop in youth joblessness, which declined by 45,000 in the quarter, taking the youth unemployment rate down from 16.4% to 15.6%.
Payroll data showed a net gain of 13,000 jobs in September, the largest monthly expansion since August 2025.
Wage growth also came in ahead of expectations, with average weekly earnings regular pay rising 3.7% on a three-month year-on-year basis, boosted by public sector pay.
Raja noted that private sector pay growth is also firming, with the annualised three-month rate pushing above 4% since March last year, adding to the case for the Monetary Policy Committee to act.
