Bank of England policymakers are expected to hold interest rates at their current 5.25% level for a second time next week after the UK jobs market showed signs of slowing down. Official figures released on Tuesday indicated that the unemployment rate rose to 4.2% between June and August, up from 4% in the March-to-May quarter. Over the same period, the number of people in work fell by 82,000 – or 0.3 percentage points – to push the employment rate down to 75.7%, according to the Office for National Statistics (ONS). Meanwhile, a survey of UK business activity indicated that the economy was weakening as the services and manufacturing industries suffered a drop in output. The data provider S&P said its latest figures showed businesses were cutting back in response to concerns that consumers were likely to come under increasing pressure from the rising cost of living and high interest rates. At 48.6 in October, the S&P Global/Cips flash UK composite output index was up fractionally from September’s 48.5, but it was the third month running that the reading was below the 50 mark, suggesting a contraction. Manufacturers reported “sentiment deteriorating, output volumes falling and [firms] becoming more cautious over their employment and investment plans” in a survey by the CBI. The Bank of England will decide on 2 November whether to increase the cost of borrowing in order to push down further on inflation, which has remained stubbornly high at 6.7%. Its monetary policy committee left the benchmark rate unchanged at its last meeting in September, ending a run of 14 consecutive rises. Analysts said the weakness of the jobs market was likely to convince the central bank’s monetary policy committee (MPC) that rates should remain on hold, bringing some relief to mortgage payers. They pointed to the decline in Tuesday’s ONS figures in the number of job vacancies listed by employers, which dipped in August below 1m for the first time in two years to 988,000 after a drop of 43,000. The ONS had been due to release its monthly UK employment and unemployment figures on Tuesday last week but in an unusual move delayed them after a poor response rate to its labour force survey. Instead, it published the “alternative” set of figures supplemented by pay as you earn real-time information provided by HMRC and the claimant count for the periods from May to July 2023 onwards. It cautioned that the figures were based on “experimental statistics” using a new methodology. The change was criticised by economists. Tony Wilson, the director at the Institute for Employment Studies, said: “These data sources have themselves had their issues over the years, so it is not a good sign that they are now considered more reliable than the official survey.” Hannah Slaughter, of the Resolution Foundation thinktank, said: “The poor quality of this data will hamper key decisions, including the Bank of England’s on interest rates.” The estimates also showed the number of people of working age outside the labour market increased in August. The ONS said 130,000 more people were not working in August, pushing the inactivity rate up 0.1 percentage point in the quarter compared with the previous three months, to 20.9%. Liz Kendall, the shadow work and pensions secretary, said the figures showed the rate of employment was still not back to pre-pandemic levels “and the number of people stuck out of work due to long-term sickness remains at a record high”. Business leaders also said the higher inactivity rate was concerning. Jane Gratton, a deputy director at the British Chambers of Commerce, said: “It’s disappointing to see the number of economically inactive again ticking up, reversing recent trends. Employers need substantial flows of people back into job seeking and employment.” The work and pensions secretary, Mel Stride, said inactivity had fallen by more than a quarter of a million since the pandemic peak. Ashley Webb, an economist at the consultancy Capital Economics, said the new figures showed the jobs market was weakening, but not by as much as expected, with August’s 82,000 fall in employment an improvement on the 133,000 drop in July. The ONS has come under fire from economists who argue that a steep fall in the number of responses to the labour force survey from a high of about 90,000 to below 50,000 has undermined credibility in UK statistics. Officials at the ONS have pledged to revamp the labour force survey by next spring. Wilson said the ONS’s attempt to rescue the situation with figures based on the claimant count and HMRC PAYE data was unlikely to be any better as a reliable indicator of the UK employment situation. The IES head said he was hopeful “normal service” would be resumed in the coming months, though “we may need to wait until next spring’s ‘transformed’ labour force survey before we start to get a better idea of what is going on”.