Box E: How Much Further Will Unemployment Rise?

Over the past three years, the unemployment rate has risen from a low of 3.6 per cent to 5.1 per cent. Over the same period, job vacancies have fallen by 40 per cent, and the number of people claiming unemployment benefits has risen by about seven per cent. Despite this, the employment rate has remained broadly stable, while inactivity has continued to fall. Recent business surveys also point to higher uncertainty and weaker confidence. Taken together, these indicators suggest a steady cooling of the labour market, with a larger pool of people available for work. Under normal circumstances, such developments would be expected to reduce wage growth. Higher unemployment and fewer vacancies typically weaken workers' bargaining power, while increased participation expands labour supply. Wage growth has indeed moderated ‐ from 6.0 per cent in the third quarter of 2022 to 4.7 per cent in the third quarter of 2025 ‐ yet it remains above a rate consistent with two per cent CPI inflation. This box uses labour market flows data to shed light on why unemployment has risen while wage pressures have remained relatively persistent. We examine where the labour market has been, where it stands today, and what this implies for the path of unemployment and wages ahead.