Weekly Briefing: Rising Unemployment, Public Market Withdrawals, Start-Up Valuations & Property Market Movements

In this week’s briefing, attention shifts to the tug of war between slowing momentum and pockets of resilience across the UK economy. The latest ONS data show unemployment hitting a post-pandemic high, heightening expectations of an interest rate cut next month. At the same time, investors are pulling sums from equity funds amid pre-Budget tax fears and mounting concern over inflated AI valuations.

Yet beneath the surface of market jitters, private tech firms continue to attract capital, pushing global unicorn valuations close to $3 trillion - a reminder that investor optimism has not entirely disappeared. In property, house prices have rebounded sharply despite affordability pressures and looming tax changes, signalling that sentiment in key areas remains surprisingly sturdy.

Read on for the full picture. 

Rising Unemployment Fuels Expectations of an Interest Rate Cut

UK unemployment has climbed to 5% in the three months to September - the highest level since early 2021 and above the 4.9% analysts had expected ahead of the Budget. The rise marks a clear softening in the jobs market, with the Office for National Statistics noting the latest data “points to a continually weakening labour market.” This comes despite a slight rise in job vacancies, suggesting demand from employers remains uneven across sectors.

The number of people on company payrolls fell by 180,000 in the year to October - a drop of 0.6%, larger than expected - as many firms “shelved any major hiring plans” ahead of the Budget, according to Quilter Cheviot’s Richard Carter. While total job vacancies rose marginally to 723,000, that figure remains far below the post-pandemic peak of 1.3 million, showing a clear difference in the demand for hiring despite unemployment rising. The ONS cautioned that its data carries some uncertainty due to methodological adjustments, though the overall picture is one of stagnating employment momentum.

A point worth noting that hasn't seemed to come up recently is the difference in private and public sector employment data. Over recent months, public sector employment has been net positive, which, when subtracted from the total data, makes the private sector picture particularly bleak.

Wage growth has also started to cool, with average earnings up 4.6% in the third quarter, down from 4.7% previously. Public sector pay grew 6.6% compared to 4.2% in the private sector, but economists expect both to ease as budget pressures tighten and more people return to the labour market, reducing bargaining power. According to KPMG’s Yael Selfin, “moderating wage pressures and a softening labour market are expected to bring wage growth closer to levels consistent with the inflation target by the end of the year.”

Politically, the figures have triggered criticism from opposition parties, who blame the government’s “complacent attitude to jobs and businesses” for the rise in unemployment. For the Bank of England, however, weaker data strengthens the case for a December rate cut - an idea that’s quickly gained traction among analysts. As Selfin put it, “today’s data strengthens the Bank of England’s case to resume cutting interest rates next month.”

Record Investor Withdrawals Reflect Market Jitters

Investors have been pulling money out of equities at a record pace as anxiety builds ahead of the Budget and fears grow of an overvalued stock market. Between July and October, £7.3 billion was withdrawn from equity funds - the largest outflow ever recorded by Calastone. A staggering £3.6 billion left in October alone, marking the fifth straight month of outflows after a strong start to the year.

UK-focused funds saw the biggest pullback, losing £1.2 billion, while global and North American funds also suffered sharp outflows of £911 million and £649 million respectively. Edward Glyn, Head of Global Markets at Calastone, said investor behaviour was being driven by two key forces: nervousness over lofty stock valuations, particularly in US tech, and fears about Rachel Reeves’s forthcoming tax rises. “For some,” he said, “it’s a simple matter of crystallising capital gains in case rates go up. For others, it’s about protecting their pensions.”

The turbulence comes amid a dramatic sell-off in global tech stocks. AI-related firms shed over £750 billion in market value last week, led by a £350 billion fall in Nvidia’s share price. Meta also lost around £68 billion in the same period. These declines have intensified talk of an AI bubble - a theme echoed later by PwC’s report on private tech valuations - and prompted warnings from the IMF that “mega-cap stocks failing to generate expected returns… could trigger deterioration in investor sentiment and make the stocks susceptible to sudden, sharp correction.”

The IMF added that the concentration risk posed by trillion-dollar firms such as Microsoft and Meta now exceeds levels seen during the 2000 dot-com bubble. As a result, any significant correction in AI-linked shares could reverberate across broader markets. “Valuations would collapse as a result,” the Fund warned, “making the broader benchmark index vulnerable to downturns.”

AI Valuations Surge as Private Markets Defy Public Market Fears

Despite public market jitters, the private tech sector continues to defy gravity. PwC’s latest report shows the world’s top 100 unicorns have seen their combined valuation rise 44% year-on-year to almost $3 trillion - a $895 billion jump largely fuelled by AI. For the first time, AI has overtaken fintech as the dominant sector, accounting for 43% of total value and around 80% of total valuation gains.

PwC found that 43 unicorns raised new funding rounds this year, with 39 of them achieving higher valuations. AI companies alone more than doubled in value to $1.25 trillion, with eight new entrants joining the list. The report attributes the strength of private valuations to “a stabilising macroeconomic backdrop and the vast sums of capital still chasing growth stories,” particularly in generative AI, defence technology, and space.

While public markets are showing signs of caution - with shares in Nvidia, Palantir, and Meta all falling recently - private investors appear undeterred. Kat Kravtsov of PwC UK said: “The availability of private capital and strong investor interest have provided a solid foundation for the growth of the world’s most valuable unicorns.” Her colleague Michael Wisson added that this surge “should provide a platform for more broad-based growth in funding and deal activity across sectors in the 12 months ahead.”

However, the report lands amid unease about whether the AI boom is sustainable. Recent comments from OpenAI’s finance chief about potential state-backed debt guarantees prompted denials from CEO Sam Altman and sent the Nasdaq down over 2%. For UK startups, there are also policy concerns. Founders from Revolut, OakNorth, Quantexa, and ClearScore have warned the Treasury that higher capital gains or “exit taxes” could drive listings overseas - a warning that ties into the investor outflows discussed earlier. As one letter to Rachel Reeves put it, such policies “would make the UK less competitive at precisely the moment when it needs to lead.”

House Prices Hit Record High Despite Budget Uncertainty

After months of volatility, the housing market showed fresh signs of life in October. Halifax data revealed prices rose 0.6% month-on-month - the fastest pace since January - pushing the average UK home to a record £299,862. That was well above forecasts for a 0.1% increase, and marked a reversal from September’s 0.3% decline. Annual growth reached 1.9%, with stronger-than-expected demand despite growing caution ahead of the Budget.

Mortgage approvals have climbed to their highest level this year, showing that buyer interest has remained resilient even as affordability remains stretched. With average mortgage rates around 4%, many buyers are compensating by stretching loan terms or lowering deposits. Halifax’s Amanda Bryden said, “while there has been some volatility, the market has proven resilient over recent months.”

This resilience comes in spite of uncertainty over potential tax changes. Reports earlier in the year suggested the chancellor might replace stamp duty with a new levy on homes worth over £500,000 - a move that has prompted some buyers to hold off until the Budget. According to Chestertons’ Matthew Thompson, “October’s property market was noticeably calmer as many buyers have paused to see what the budget might bring.”

The expectation is that once policy clarity returns, demand will accelerate again. Bryden noted that “with house prices rising more slowly than incomes for almost three years now, we expect the trend of gradually improving affordability to continue.” That, combined with the potential rate cut discussed earlier, could see buyer sentiment strengthen further heading into 2026.

Even so, not all parts of the sector are thriving. Shares in Rightmove fell as much as 25% last week after the company warned of slowing profit growth, though it expects its AI investment to drive longer-term gains. As the company put it, “AI investment will help lead to higher profit growth in the long term” - a statement that neatly mirrors the tech optimism and underlying caution threading through much of the UK economy this autumn.

Final Note

This week’s developments underline the mixed signals now defining the UK and global economy. Rising unemployment and subdued wage growth strengthen the case for a December rate cut at home, while record investor withdrawals and global tech volatility underscore how fragile confidence has become. Yet the resilience in private capital markets and housing offers a reminder that parts of the economy are still quietly moving forward.

For investors, the message is to stay alert to policy risk. The coming Budget will test whether sentiment can steady without dampening investment - especially in innovation sectors now driving global growth, such as fintech, AI and Renewables. Meanwhile, the Bank of England’s next move will determine how much relief filters through to households and businesses alike.