Britain's unemployment rate unexpectedly rose and vacancies fell for the fifth report in a row as employers worried about the outlook for the economy, official data showed on Tuesday, ahead of a tough government budget plan later this week.

But pay growth stayed strong, with the increase in basic pay hitting a record high excluding the pandemic period, keeping pressure on the Bank of England (BoE) to continue raising borrowing costs despite the economic slowdown.

With Treasury chief Jeremy Hunt set to raise taxes and cut spending on Thursday to fix the public finances, potentially deepening an expected recession, the jobless rate rose to 3.6%, pushed up by a rate of 3.8% in September alone.

Economists polled by Reuters had expected the unemployment rate to remain at 3.5%.

The number of people in employment fell by 52,000 in the July-to-September period, the British Office for National Statistics (ONS) said, a bigger decline than the median forecast in the Reuters poll for a 25,000 drop.

The number of job vacancies in the August-to-October period fell to 1.23 million, its lowest since late 2021.

"Job vacancies continue to fall back from their recent peak, with increasing numbers of employers now telling us that economic pressures are a factor in their decision to hold back on recruitment," ONS statistician Darren Morgan said.

The biggest falls in vacancies were in hospitality, followed by retailing and wholesaling.

However, the level of vacancies is still high by historical standards, underscoring the problems facing many employers struggling to fill their empty roles.

The BoE fears that Britain's shrinking labor market will add to inflation pressures, forcing it to keep on raising rates even as the economy heads into an expected recession.

Wages excluding bonuses rose by 5.7%, their highest annual growth rate excluding the coronavirus pandemic period. The Reuters poll had pointed to a smaller increase of 5.5%.

Including bonuses, wages rose by 6.0%, compared with the poll forecast of 5.9%.

"Overall, while today’s release provided some tentative signs that the labor market is turning, the Bank of England will want to see concrete signs of easing wage growth," Ashley Webb, an economist with consultancy Capital Economics, said.

The sterling was up by more than half a percent against the dollar shortly after 8 a.m. (8 a.m. GMT).

Webb said the BoE would probably raise rates by another half percentage point in December before taking them to a peak of 5% although Thursday's budget statement could reduce the urgency for further rate hikes if it slows the economy sharply.

Wages are rising by far less than inflation which is expected to have hit 10.7% in data due on Wednesday, hitting the spending power of British households.

The ONS said both its measures for wages, adjusted for the consumer price index, were down by almost 4%.

The share of people classed as inactive – neither in work nor looking for it – fell to 21.6% from 21.7% in the three months to August.

Hunt has said he will address the problems of worker shortages in his budget statement on Thursday, Daily Sabah reports.