Fall in unemployment gives chancellor pre-budget boost

By the Editorial Team · Wednesday, October 21, 2026

The UK unemployment rate fell to 4.7% in the three months to August, defying expectations with an increase in payrolled employees despite a sharp decline in job vacancies to the lowest level since 2021. This mixed labour market data signals potential challenges ahead, including limited hiring and wage growth pressures, just as Chancellor John Healey prepares for his first budget announcement.

Unemployment in the United Kingdom decreased unexpectedly in the three months to August, providing a positive signal ahead of Chancellor John Healey’s first budget announcement next week. According to data from the Office for National Statistics (ONS), the unemployment rate fell to 4.7%, down from 4.9% in the previous quarter, defying economists’ forecasts of a rise to 5%.

In addition to the lower unemployment rate, the number of payrolled employees increased by 13,000 between August and September, reaching 30.3 million. However, the figures also revealed a pronounced decline in job vacancies, which fell to 691,000 in the three months to September—the lowest number recorded since 2021—after peaking at approximately 1.3 million in the period following the pandemic.

Economists highlighted the mixed nature of the labour market data. Ben Harrison, director of the Work Foundation thinktank at Lancaster University, cautioned against complacency, noting that despite the fall in unemployment, the UK continues to face a significant jobs shortage. “Vacancies are at their lowest for over 12 years outside of the pandemic,” he said, adding that the construction sector experienced particularly sharp declines in hiring last summer.

Wage growth data presented a complex picture. Average pay growth excluding bonuses rose slightly to 3.7% from 3.6%, while including bonuses it fell from 3.9% to 3.7%, suggesting fewer workers received bonuses. Wage growth remains above the inflation rate, which stood at 3.1% in August and is expected to increase to 3.4% following the release of September figures.

The labour market figures affected financial markets, with the pound rising about half a cent against the US dollar to $1.3352. Investors reacted positively amid speculation that the Bank of England may raise interest rates from the current 3.75% as early as next month.

Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, described the labour market as "running on idle," with employers limiting both hiring and pay increases in response to rising costs and uncertainties ahead of the budget. He pointed to the continued decline in vacancies as a warning sign, arguing that although the UK’s economy has benefited from AI-driven growth, this has come at the expense of weaker demand for new hires and elevated employment expenses.

The ONS also reported a reduction in youth unemployment for individuals aged 16 to 24, with 715,000 young people unemployed—a decrease of 28,000 from the previous quarter. While Harrison welcomed this improvement, he emphasized that the number of unemployed young people remains 54,000 higher than a year ago, underlining the ongoing challenges faced by this group.

Work and Pensions Secretary Pat McFadden highlighted the resilience of the UK labour market despite global uncertainty, noting the country’s employment rate now ranks third highest in the G7. However, he acknowledged the need for increased support to help young people access job opportunities.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.