Jobless Rate Drops to 4.7%, Yet Small Firms Trim Recruitment
The Office for National Statistics (ONS) reported that the UK unemployment rate fell to 4.7% in the three months to August, the lowest level since July 2025. At the same time, the number of job vacancies continued to shrink, dropping by 21,000 to 691,000 in the three months to September. The ONS said the decline was driven mainly by smaller businesses that are pulling back on hiring because of higher labour costs.
The latest figures provide the final pre‑Budget snapshot of the labour market, and analysts see them as a sign that the market is stabilising despite the slowdown in recruitment. David Freeman, the ONS’s deputy director of labour market statistics, said the market remains “broadly flat,” noting a modest rise in the employment rate and “a small drop in unemployment.” He added that payroll numbers are still slightly lower than a year ago, although the most recent month suggests they may be leveling off. Freeman pointed out that the sharp fall in vacancies – the biggest since the start of the year – is concentrated in smaller firms, which cite rising labour costs as a key factor. He mentioned higher energy prices since the Iran war began, along with increases in National Insurance and the minimum wage, as contributors to the higher cost of employing staff.
Vacancies fell to their lowest level in more than five years, with construction jobs seeing the steepest decline. Average earnings excluding bonuses rose 3.7% in the three months to August, up from 3.5% the month before, giving a real‑terms wage growth of 0.8% after inflation.
Work and Pensions Secretary Pat McFadden said the data “show the resilience of our labour market,” adding that the UK’s employment rate is now the third highest among G7 nations despite global uncertainty. He warned, however, that “too many young people still find themselves locked out of employment,” and said the government is working with industry to bring young people back into work and keep them from drifting into the welfare system.
Conservative shadow chancellor Andrew Griffith responded on X, arguing that “businesses can’t afford to hire” and blaming “attacks on employers, tax jobs, and red tape” for the hiring slowdown.
The ONS also highlighted that the unemployment rate for 16‑ to 24‑year‑olds was 15.6% in the June‑August quarter, down from 16.4% in the previous quarter but still above the 14.6% recorded in the same period last year. Separate ONS data show that nearly one million young people in the UK are classified as NEET – not in education, employment or training.
Prime Minister Andy Burnham warned on Monday that the country faces an “economic catastrophe and moral failure” if youth unemployment remains high. Capital Economics senior UK economist Ashley Webb described the drop in the overall unemployment rate as “unexpected,” saying it suggests the labour market continues to recover, but cautioned that “with businesses’ energy costs likely to fall only slowly, we still think hiring will stay subdued.” Louise Murphy, senior economist at the Resolution Foundation, noted that the labour market has struggled in recent years as job numbers fell and pay growth weakened, yet she sees “green shoots” emerging from recent economic resilience, pointing to rising employment and stabilising private‑sector wages.
The quality of ONS statistics has come under scrutiny in recent years. A review last year identified “deep‑seated” issues with the agency’s Labour Force Survey, which has suffered from low response rates. In a Tuesday update, the ONS said response levels have improved but that “some volatility” remains in the data.