In brief
Unemployment falls and payrolls edge up
The UK unemployment rate fell to 4.7% in the three months to August, down from 4.9% in the three months to July, the Office for National Statistics said on 20 October. Economists had expected the rate to rise to 5%, which makes the drop a surprise. It is the lowest reading since the three months to July 2025, though the ONS stressed that the figures are provisional and likely to be revised. A more timely measure showed payrolled employees rising by about 13,000 between August and September, to 30.3 million, reversing several months of decline.
- Three months to July
- 4.9 %
- Three months to August
- 4.7 %
Data from the article text
David Freeman, the ONS deputy director of labour market statistics, said the labour market remained broadly flat in 2026 while the employment rate edged up over the latest quarter. He also pointed to the payroll figures:
“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.”
Vacancies at a five-year low
Vacancies fell by 21,000 to 691,000 in the three months to September, the lowest level since 2021 and the steepest fall since the start of the year. The total slipped below 700,000 for the first time since April 2021. Most of the decline came from smaller businesses, which cited higher labour costs as a key reason for scaling back hiring. Energy costs have climbed since the Iran war began, and companies have pointed to higher National Insurance contributions and the minimum wage as making staff more expensive.
Pay growth and inflation
Regular pay growth rose to 3.7% in the three months to August, and after adjusting for consumer price inflation it was 0.8% higher. Total earnings including bonuses eased to 3.7% from 3.9%, their lowest rate in nearly six years. Headline inflation stood at 3.1%, which leaves pay growth above prices and worries Bank of England rate setters, who fear higher wage awards will push up prices. Freeman described regular wage growth as relatively stable over the period.
Economists and business reaction
Suren Thiru, chief economist at the ICAEW, said the labour market is running on idle.
“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.”
Thiru added that weak wage growth suggests the Iran-driven energy shock has not yet fed into a broader inflation spiral, although the cost-of-living squeeze persists. Sanjay Raja, chief UK economist at Deutsche Bank, called the signs of a stabilising jobs market good news for Chancellor John Healey.
Pressure ahead of the Budget
Kevin Fitzgerald, UK managing director at Employment Hero, said small firms are holding back expansion plans because employment costs keep changing. He pointed to two years of successive changes to employment costs and legislation, which his firm's data suggests have stretched out the hiring recovery. He added:
“With the Autumn Budget approaching, SMEs are understandably holding fire.”
The figures land ahead of the Budget on 28 October, the first that John Healey will present as chancellor. Thiru argued that the persisting cost-of-living squeeze increases pressure on the Chancellor to act in that Budget.