Jobless rate falls but small firms cut back hiring

Image source, Getty ImagesByTom EspinerBusiness reporterPublished20 October 2026, 07:19 BSTUpdated 31 minutes agoThe UK's unemployment rate has dropped to its lowest for more than year, but job vacancies have continued to fall as smaller businesses cut back on recruitment, official figures indicate.

The jobless rate fell to 4.7% in the three months to August, the Office for National Statistics (ONS) said, the lowest since July last year.

However, vacancies fell by 21,000 in the three months to September to 691,000, with the ONS saying small firms were citing labour costs as a key factor in scaling back hiring.

The figures are the last official snapshot of the jobs market before the Budget, and analysts said they indicated the jobs market was showing signs of recovery despite the weakness in hiring.

ONS deputy director of labour market statistics, David Freeman, said the labour market remained "broadly flat", with the latest data showing 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," he said.

"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."

Energy costs have risen since the Iran war began, and companies have also said that increases in National Insurance and the minimum wage have made it more expensive to employ staff.

The number of job vacancies fell to its lowest level in more than five years, the figures indicated, with the largest decrease in construction jobs.

Average earnings excluding bonuses rose 3.7% in the three months to August, up from 3.5% last month. Taking inflation into account, wages grew 0.8% in real terms.

Pat McFadden, the Secretary of State for Work and Pensions, 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".

However, he said that "too many young people still find themselves locked out of employment".