UK Unemployment Falls to 4.7% But Vacancies Keep Shrinking 2026

The UK unemployment rate has fallen to 4.7% in the June to August period, delivering a pre-budget boost to Chancellor John Healey, but firms are continuing to cut vacancies. According to the Office for National Statistics (ONS), this is the final snapshot of Britain’s jobs market before the budget in two weeks’ time.

The drop from 4.9% a month ago beat City economists’ forecasts of a rise to 5%. Employment rose by 102,000 jobs to 34.577 million in the last quarter, while the number of unemployed people fell by 47,000 to 1.712 million. There was also a small 16,000 drop in the number of people ‘economically inactive’, to 9.091 million.

However, the number of vacancies saw its largest fall since the start of the year, dropping by 21,000 in the last quarter. That pulled the total down to 691,000 in July to September, from over 1.2 million in early 2022. This is the first time the total has been below 700,000 since February to April 2021.

What the Latest UK Unemployment Data Shows

The ONS report paints a mixed picture of the labour market. On the surface, the falling unemployment rate suggests a resilient jobs market. But the sharp decline in vacancies indicates that employers are becoming more cautious about hiring.

The ONS says the drop in vacancies is “mainly from smaller firms, who continue to suggest that they may not be recruiting because of increased labour costs.” That’s a reference to the higher employer National Insurance Contributions (NICs) brought in by Healey’s predecessor, which have raised the cost of taking on new staff.

• Unemployment rate: Fell to 4.7%, beating expectations of 5%.
• Employment: Rose by 102,000 to 34.577 million.
• Unemployed people: Down 47,000 to 1.712 million.
• Economic inactivity: Dropped by 16,000 to 9.091 million.
• Vacancies: Down 21,000 to 691,000 – the lowest since early 2021.

For Chancellor Healey, the headline unemployment figure is welcome news ahead of the budget. But the underlying weakness in hiring could undermine confidence in the economy’s momentum.

Why Vacancies Are Falling While Unemployment Drops

Normally, a falling unemployment rate goes hand in hand with rising vacancies as businesses compete for workers. But this cycle is different. Firms are holding back on recruitment, especially smaller businesses that are more sensitive to cost pressures.

The increase in employer NICs has made hiring more expensive, leading some firms to delay or cancel plans to expand their workforce. At the same time, the pool of available workers has shrunk slightly as more people move into employment or leave the labour market altogether.

This mismatch – fewer vacancies but also fewer unemployed – suggests that the labour market is tightening in an unusual way. It may also reflect a shift in the types of jobs being created, with more part-time or temporary roles replacing full-time positions.

Impact on Wages and Inflation

With vacancies falling, wage growth may start to cool. That would be welcome news for the Bank of England, which has been concerned about persistent inflation driven by high wage settlements.

However, if firms continue to cut vacancies, workers may find it harder to negotiate pay rises. That could weigh on consumer spending and overall economic growth.

The budget in two weeks will be a key test of how the government plans to support the labour market while keeping public finances in check.

What to Watch Next

Economists will be watching the next set of ONS data closely to see if the vacancy decline continues. Any further falls could signal that the labour market is weakening more than expected.

The budget announcements on employment support and business taxation will also be crucial. If the government introduces measures to offset higher NICs or encourage hiring, that could stabilise vacancies.

For now, the fall in unemployment gives the Chancellor a positive headline, but the details reveal a more nuanced picture.

Comparison of Key Labour Market Indicators

FAQ

The latest figures come amid a broader slowdown in the UK economy, with borrowing falling and job vacancies declining. As reported in our analysis of the UK economy slows as borrowing falls and job vacancies decline, the labour market is cooling in line with weaker economic activity.

Smaller firms are at the sharp end of these changes. Many are turning to technology to maintain their workforce rather than cut jobs, a trend explored in our piece on how small businesses use AI to keep jobs, not cut them. This could help offset some of the cost pressures from higher NICs.

Meanwhile, the government’s focus on living standards remains central. As we noted in our coverage of UK job vacancies plummet as Burnham targets living standards, the Chancellor is under pressure to deliver policies that support households while managing the fiscal outlook.

Business rates are another concern for many firms, especially in hospitality. Our report on business rate valuations fairer for pubs and hotels highlights how upcoming changes could affect hiring decisions in these sectors.

For a broader view of the challenges facing the labour market, see our earlier coverage of UK job vacancies drop as Burnham targets living standards. The trend of falling vacancies has been consistent for several months.

Finally, the budget will also be watched for its impact on key industries. As we reported in defence profits boost: UK firms surge on spending, some sectors are benefiting from increased government spending, which could offset weakness elsewhere.