UK unemployment falls to lowest in a year – but vacancies drop to five-year low to underline jobs challenge

The UK’s unemployment rate has fallen to the lowest level in more than a year – but the plummeting number of job vacancies has hit a five-year low, new figures show.

The rate of UK unemployment fell to 4.7 per cent in the three months to August, from 4.9 per cent in the three months to July, the Office for National Statistics (ONS) said.

This was the lowest level since the three months to July 2025. More timely data suggests that workers on payrolls increased by about 13,000 between August and September.

But experts point to the lowering number of available roles for those trying to enter the workforce as being a massive indication of the task at hand for John Healey, heading toward his first Budget as chancellor.

“The UK labour market is running on idle, with employers still limiting recruitment and pay awards in response to surging cost pressures and pre-Budget policy uncertainty,” said Suren Thiru, ICAEW chief economist.

“While weak wage growth should reassure rate-setters that the Iran-driven energy shock is not yet fuelling a broader inflation spiral, it also means the cost-of-living squeeze persists, increasing pressure on the Chancellor to act in next week’s Budget.

“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.”

Kevin Fitzgerald, UK MD at Employment Hero, added that small businesses are needing to reign in expansion plans due to constant uncertainty over how much it will cost them year to year.

“With the Autumn Budget approaching, SMEs are understandably holding fire. And who can blame them?” he said. “Over the past two years, they’ve had to navigate successive changes to employment costs and legislation, with our data showing just how long it’s taken for hiring to recover.”

The ONS’s data also showed a boost for average wage growth across the UK workforce.

Average regular earnings growth rose to 3.7% in the three months to August and was 0.8% higher after taking Consumer Prices Index inflation into account.

However, the number of vacancies in the UK fell by 21,000 to a fresh five-year low of 691,000 in the three moths to September, according to the ONS’s estimates. This marked the biggest decline since the three months to March.

ONS deputy director of labour market statistics, David Freeman, said: “While the labour market remains broadly flat in 2026, data from the latest quarter shows the employment rate edging up and a small drop in unemployment.

“The number of workers on payroll remains slightly down over the same period, though data for the most recent month suggests that might be starting to level off.

“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.

“Regular wage growth remained relatively stable, though total pay – including bonuses – has eased to its lowest rate in nearly six years.”

In response to the figures, the British Chambers of Commerce (BCC) urged Mr Healey to cut National Insurance costs for young workers and offer a “tax reduction package” for all firms to encourage them to begin hiring once more.

Patrick Milnes, head of people and work policy at the BCC, said: “While it’s welcome that unemployment eased slightly in the three months to August, the jobless figure remains stubbornly high at 4.7 per cent.

“With the number of vacancies falling further, urgent action is needed in the Budget to change the dynamics around hiring.

“Businesses are suffocating under a mountain of costs which means expansion plans are being put on hold and young people are missing out on job opportunities.

 “Our latest research shows labour costs are the top pressure for businesses, cited by 69 per cent of firms.

“The Chancellor must take a bold approach in his Budget, next week. Any further tax increases on business would be calamitous for growth and jobs. Instead, he must pivot to easing the cost burden. That means cutting employer National Insurance contributions for all under-25s.

“He must then go further with a targeted tax reduction package to ease energy and business rate pressures for all firms.”

Keith Rosser, director at the Better Hiring Institute, blamed a combination of artificial intelligence and poor recruitment processes for failing to get the right people into the right roles.

“The UK’s jobs market and hiring system is fundamentally broken,” he said. “The number of vacancies has fallen substantially and the number of jobseekers is broadly as it was a month ago. What we’re seeing a system that isn’t matching the right people to the right roles quickly and effectively, with businesses struggling to hire even when there are so many people are looking for work.

“This is not a short‑term trend – it reflects the structural problems we have had for some time in the jobs market. These problems have been exacerbated over the past year by a slowing economy and the introduction of AI, which has placed immense pressure on the recruitment process.”

Additional reporting by PA