UK Unemployment Falls to 4.7% as Job Vacancies Drop Below 700,000

UK unemployment fell unexpectedly to 4.7% in the three months to August 2026, official figures showed on Tuesday, 20 October, but job vacancies dropped below 700,000 for the first time in more than five years as smaller employers cut back on hiring. The mixed picture is the last official snapshot of the jobs market before Chancellor John Healey’s first Budget next week.

The Office for National Statistics (ONS) said the unemployment rate for people aged 16 and over was down 0.1 percentage points on both the previous quarter and the same period a year earlier. City economists had expected a rise, with some forecasting 5%, the Guardian reported. The BBC said it was the lowest jobless rate since July 2025.

What Do the Latest UK Jobs Figures Show?

The ONS described the labour market as “broadly flat” in 2026. Its main estimates for June to August were:

• Unemployment rate: 4.7%, down 0.1 percentage points on the quarter and the year.
• Employment rate: 75.3% for people aged 16 to 64, up 0.2 points on both the quarter and the year.
• Economic inactivity: 20.9%, down 0.1 points on the quarter.
• Vacancies: 691,000 in July to September, down 21,000 (2.9%) on the previous quarter and 37,000 on the year.
• Payrolled employees: an early estimate of 30.3 million in September, up 13,000 on the month but 66,000 lower than a year earlier.
• Claimant Count: an estimated 1.701 million in September, up on both the month and the year.

“The number of vacancies has seen its largest fall since the start of the year, concentrated mainly within smaller businesses, which cite increased labour costs as a key factor,” said David Freeman, the ONS deputy director of labour market statistics, according to the BBC.

Is Payroll Employment Levelling Off?

The tax office’s payroll data, which counts employees paid through PAYE, offered tentative signs of stabilisation. The early estimate for September showed a rise of 13,000 on the month, while August was revised to show an increase of 1,000 rather than the provisional fall of 26,000, Reuters reported. Over the year to August, however, the number of payrolled employees was still down by 111,000, according to the ONS. Freeman said the most recent data suggested the decline “might be starting to level off”, but cautioned that the number on payroll remained slightly lower than a year earlier.

How Low Are Job Vacancies?

Vacancies slipped below 700,000 for the first time since the three months to April 2021 and are at their lowest level outside the Covid-19 pandemic since 2014, Reuters reported. Vacancies peaked at about 1.3 million in the period after the pandemic, according to the Guardian.

The construction sector recorded the largest decrease in vacancies. Ben Harrison, director of the Work Foundation think tank at Lancaster University, said the UK was “still amid a jobs drought with vacancies at their lowest for over 12 years outside of the pandemic”.

What Is Happening to Pay?

Regular pay growth, which excludes bonuses, edged up to 3.7% in the three months to August, from a revised 3.6%, beating the 3.6% expected in a Reuters poll. Private-sector regular pay growth rose to 3.0% from 2.9%, its first increase since the end of 2024.

Total pay growth, including bonuses, slowed to 3.7% from 3.9%, the Guardian reported, suggesting fewer workers received bonuses. Adjusted for inflation, regular wages grew 0.8% in real terms, the BBC said. Consumer price inflation was 3.1% in August and is expected to rise to about 3.4% when September figures are published on Wednesday.

Why Are Small Firms Hiring Less?

Employers have pointed to rising costs. Energy prices have climbed since the Iran war began, and companies say increases in employer National Insurance contributions and the minimum wage have made it more expensive to take on staff, the BBC reported.

Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, described the labour market as “running on idle”. “The continued fall in vacancies is a flashing red warning light for the labour market, suggesting that a damaging side-effect of this year’s AI-fuelled economic growth has been weaker hiring demand, compounded by elevated employment costs,” he said.

Jack Kennedy, senior economist at the jobs website Indeed, said the figures pointed to “a labour market showing some resilience”, but that a stronger turnaround depended on the Budget. “Today’s figures confirm a labour market that is treading water,” he said. “The question is whether the Budget gives employers a reason to start swimming.”

Are Young People Still Struggling?

Youth unemployment remains a concern. The ONS estimated there were 715,000 unemployed people aged 16 to 24, down 28,000 on the quarter, the Guardian reported. The unemployment rate for that age group was 15.6% in June to August, down from 16.4% in March to May but higher than 14.6% a year earlier, according to the BBC.

Work and Pensions Secretary Pat McFadden said the figures “show the resilience of our labour market”, with the UK’s employment rate “now the third highest in the G7, despite a backdrop of global uncertainty”. He acknowledged that “too many young people still find themselves locked out of employment” and said the government was working with industry to help them into work.

Prime Minister Andy Burnham warned on Monday that the UK faces an “economic catastrophe and moral failure” because of high youth unemployment, the BBC reported. Separate ONS figures suggest nearly one million young people are not in education, employment or training.

The shadow chancellor, Andrew Griffith, said on X that “businesses can’t afford to hire”, blaming government policy on employers.

What Does It Mean for Interest Rates?

The data may strengthen the case for a Bank of England rate rise. Investors expect the Bank to raise its benchmark rate from 3.75% to 4% at its November meeting, Reuters reported, as policymakers watch for signs that the energy price shock from the Iran war is feeding into wider inflation through pay demands.

Ellie Henderson, an economist at Investec, said lower unemployment and higher wages would make most members of the Monetary Policy Committee nervous about holding rates. Sterling rose against the dollar after the figures were released.

Not all economists are convinced. Ashley Webb of Capital Economics said the drop in unemployment suggested the labour market “continues to recover”, but added that “with businesses’ energy costs likely to fall only slowly, we still think hiring will stay subdued”.

How Reliable Are the Figures?

The ONS has faced criticism over the quality of its labour market statistics, particularly the Labour Force Survey, which has suffered from low response rates. The ONS said on Tuesday that response levels had improved but that “some volatility” remained, the BBC reported. Reuters noted the survey is being overhauled.

What Does It Mean for Jobseekers?

For people looking for work, the figures suggest a market that is stable but competitive. Fewer advertised vacancies, particularly at smaller firms and in construction, mean more applicants may be chasing each opening. At the same time, slightly faster pay growth and a rising employment rate suggest employers are holding on to staff.

Louise Murphy, senior economist at the Resolution Foundation, said the labour market “has performed poorly in recent years”, but that the UK’s “recent bout of economic resilience may finally be creating some green shoots”.

Jobseekers may find opportunities in sectors still recruiting, and in employers less exposed to energy and labour-cost pressures. Young people and career changers may also benefit from training schemes and scholarships, such as the government’s TechFirst Undergraduate Scholarship for students interested in technology careers.

What to Watch

• The Budget: whether John Healey changes employer taxes or offers hiring incentives next week.
• Inflation data: September figures on Wednesday, expected to show a rise to about 3.4%.
• Bank of England: whether the Monetary Policy Committee raises rates in November.
• Vacancies: whether the fall in job openings at small firms continues.
• Youth unemployment: progress on government plans to help young people into work.
• Next ONS release: 17 November 2026.

For more, see our Jobs & Careers News section.

Sources

• Office for National Statistics — Labour market overview, UK: October 2026 (20 October 2026).
• BBC News — Jobless rate falls but small firms cut back hiring (20 October 2026).
• The Guardian — Surprise drop in UK unemployment to 4.7% as John Healey’s first budget looms (20 October 2026).
• StreetInsider (Reuters) — UK jobs market shows some recovery signs as BoE mulls rate hike (20 October 2026).