17 December 2025: UK unemployment rate rises to 5.1%

The Conservative Party is doubtless considering resurrecting their poster from the 1979 election campaign, which claimed “Labour isn’t working”. This is a reference to the unemployment rate under the then Labour Government of James Callaghan, which ranged between 5% and 6% at the time.

The latest unemployment date, published yesterday, shows that the number of people unemployed in the three months to September rose to 5.1%, its highest since January 2021, while private sector wages fell close to a five-year low, further signs of a deteriorating labour market.

Overall employment across the economy also contracted in November, with the number of monthly payrolled employees falling by 38,000 according to the Office for National Statistics. Payrolls fell by 22,000 in October.

The figures come two days before the Monetary Policy Committee’s latest interest rate decision on Thursday, where rate-setters are split over whether to carry out the fourth interest rate cut of the year. The labour market has been gradually cooling this year, with falling employment and hiring in lower-paid sectors that have been hit by the rise in employers’ national insurance from April.

Market sources are using the classic measure of a downturn to claim that the country is now in an employment recession, since the number of jobless has risen for two consecutive quarters.

The Government passed a workers’ rights package this week that expands protections for employees and achieves a key policy goal of the party’s left wing.

The Employment Rights Bill, including new rights to guaranteed hours, an expansion of parental leave and the introduction of greater protections against unfair dismissal, was approved yesterday by the House of Lords after a lengthy stand-off with the House of Commons.

“This landmark legislation, now soon to be in law, will drag Britain’s outdated employment laws into the 21st century and offer dignity and respect to millions more in the workplace,” Business Secretary Peter Kyle said in a statement. It may also make employers wary of hiring more workers unless they have certainty about the value they will bring to the business.

The changes were introduced and championed by former Deputy Prime Minister Angela Rayner, who’s seen as a potential rival to Prime Minister Keir Starmer if his dire poll ratings prompt the party to seek new leadership. According to a YouGov survey, the Chancellor and the Prime Minister’s popularity has hit rock bottom.

According to YouGov, 72% of respondents have a negative view of Reeves, and only 12% remain positive about the Chancellor and her policies.

The Conservative leader, Kemi Badenoch, has done better than Labour, as 26% of voters remain positive about the leader, which is up by 5 points from November.

The Reform UK leader, Nigel Farage, has a net rating of -35, with 64% having negative views of him and 29% seeing him in a positive light.

The Office for National Statistics releases the latest UK inflation data later this morning. Last month, data showed that the Consumer Prices Index rose 3.6% in the 12 months to October, down from 3.8% in the previous three months.

The UK’s current inflationary cycle is believed to have already peaked for 2025,

The OBR expects inflation to fall to 2.5% in 2026 and to the Bank of England's 2% target the following year.

The pound rallied yesterday, despite the poor employment data, as the dollar lost more ground. It reached its highest level since mid-October but ran out of steam, falling back and closing at 1.3424.

The U.S. economy gained 64k jobs in November but lost 105k in October as Federal Workers departed after cutbacks by the Trump administration, the government said in delayed reports.

The unemployment rate rose to 4.6% last month, its highest since 2021.

The November job gains were higher than economists had forecast at 40k. The October job losses were caused by a 162k drop in federal workers, many of whom resigned at the end of fiscal year 2025 on Sept. 30 under pressure from billionaire Elon Musk’s purge of U.S. government payrolls.

Hiring has lost momentum, driven lower by uncertainty over President Donald Trump’s tariffs and the lingering effects of the high interest rates the Fed engineered in 2022 and 2023 to rein in an outburst of inflation. Since March, job creation has fallen to an average of 35k a month, down from 71k in the year ended March.

Both the October and November job numbers, released yesterday by the Labour Department, were delayed because of the 43-day federal government shutdown. Those delays have made deliberations more difficult at the Federal Reserve, where policymakers are divided over whether the labour market needs more help from lower interest rates. It is understood that the Labour Department will be “back to normal” in either January or February.

Kevin Hassett has reclaimed the lead in prediction markets betting on who President Donald Trump will nominate as the next chair of the Federal Reserve, after briefly losing ground to former Fed Governor Kevin Warsh.

Yesterday, traders assigned Hassett a roughly 53% chance of securing the nomination, up from about 39% earlier in the day, following reports of internal pushback from those close to the President. Warsh’s implied probability fell to about 33% from 46% earlier Tuesday.

The shift seemingly occurred after Hassett showed support for Central Bank Independence on CNBC and said forging consensus is an integral part of the job.

It had been feared that Trump was engineering a “monkey see, monkey do” requirement from the new Fed Chairman.

However, in his CNBC interview yesterday, he said, “The Federal Reserve’s independence is really, really important, and the voices of the other members of the FOMC, they’re important, too,” he said. “So the way you’ve got to drive interest rate movements is with consensus based on the facts and the data.”

Worries about the job market were enough to push the Fed into cutting its benchmark interest rate by a quarter of a percentage point last week for the third time this year. But three Fed officials refused to go along with the move, the most dissents in six years.

The two central characters in the race to become The Fed’s next Chairman are competing in a market that fears they are both too close to the President. However, Hassett, as the current Director of the National Economic Council, is believed to be closer.

The dollar index plunged on the release of the employment data, falling to a low of 97.87 but recovering to close at 98.22.

Is Germany rising phoenix-like from the ashes of its manufacturing decline? Investor morale rose more than expected in December, the ZEW economic research institute said yesterday, as expectations about Germany's economic situation improved. Chancellor Friedrich Merz has barely begun to address the issues facing German industry, but several of his ideas to revamp an outdated industrial sector and transition to a more service-based economy have been taken on board.

The ZEW index rose to 45.8 points in December. Analysts polled by Reuters had expected a reading of 38.7, up only slightly from last month's 38.5.

"After three years of economic stagnation, chances for a recovery of the economy are good, and this is reflected in the sentiment," said ZEW president Achim Wambach.

He said expansive fiscal policy will provide new momentum to the economy.

Germany's government has approved a surge in public spending targeting defence and infrastructure, hoping to close gaps in long-neglected areas of investment while hauling the economy out of its downturn.

The special infrastructure funds should be released quickly and in a targeted manner next year. If this happens, multiplier effects could affect larger parts of the German economy.

Europe's leading economies closed off a turbulent year on weak momentum, according to new data, which showed scant signs of an upswing even as the region managed to withstand the impact of U.S. President Donald Trump's trade barbs.

The Eurozone economy has held up better than feared, taking up some of the slack created as exports were hit by rising U.S. tariffs and solidifying bets that the European Central Bank has finished cutting interest rates.

But resilience is not the same thing as good health. Growth remains barely above 1%, with household spending still cautious and high levels of government debt holding back spending.

Despite a positive increase in future expectations in Germany, the region's largest economy pulled down the figures for current expectations. The preliminary print of the Eurozone’s composite HCOB Purchasing Managers' Index slowed to a three-month low of 51.9 in December, falling short of expectations, as a major dip in German manufacturing offset an improvement in France.

The Bank of France will slightly raise its economic growth forecasts for France, said Central Bank Governor Francois Villeroy de Galhau, who added that the country's economy was holding up despite the climate of political uncertainty.

Villeroy de Galhau was commenting after French lawmakers narrowly approved the 2026 social security budget on Tuesday, handing Prime Minister Sébastien Lecornu a crucial victory but at an enormous political and financial cost that could still threaten his fragile government.

The Euro reached 1.1804 in the aftermath of the publication of the U.S. employment data, but was unable to cling to gains and drifted back to close at 1.1747.

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