UK unemployment fell to 4.7% in the three months to August 2026, beating economists’ expectations. However, job vacancies dropped to their lowest level since 2014, excluding the COVID-19 pandemic. Slower wage growth also highlighted mixed conditions in the British labour market.
The latest figures from the Office for National Statistics (ONS) present a complicated picture for the Bank of England as it assesses inflation pressures and future interest rate decisions.
UK Unemployment Falls Below Expectations
The UK unemployment rate declined to 4.7%, compared with economists’ forecasts of 4.9%. This represents a decrease of 0.1 percentage points from both the previous quarter and the same period last year.
According to the ONS, approximately 1.712 million people were unemployed during the June-August period.
Meanwhile, the employment rate among people aged 16 to 64 increased to 75.3%. This marked a rise of 0.2 percentage points on both a quarterly and annual basis.
Economic inactivity also declined. The rate fell to 20.9%, down 0.1 percentage points from the previous quarter and 0.2 points compared with a year earlier.
UK Job Vacancies Reach Lowest Level Since 2014
Despite the improvement in unemployment, demand for workers continued to weaken.
Job vacancies dropped by 21,000, or 2.9%, to 691,000 between July and September. This compares with the April-June period and represents the largest quarterly decline since January-March 2026.
Excluding the pandemic, vacancies have not been this low since July-September 2014, when employers reported 686,000 available positions.
Furthermore, business survey responses suggest that rising employment costs may be discouraging smaller companies from recruiting additional workers.
The decline in vacancies highlights the challenges facing the UK labour market, even as headline unemployment figures improve.
Wage Growth Slows as Inflation Concerns Persist
UK wage growth also showed signs of moderation, potentially influencing the Bank of England’s monetary policy outlook.
Total annual pay growth, including bonuses, slowed to 3.7% in June-August, compared with 3.9% in the previous three-month period.
This was the weakest reading since August-October 2020, when total pay growth stood at 2.8%.
Regular wage growth, excluding bonuses, remained at 3.7%. Notably, this measure has stayed relatively stable over the past six consecutive three-month periods.
However, differences between the public and private sectors remained significant.
Public sector regular pay increased by 6.3% annually, partly reflecting the timing of government pay awards. In contrast, private sector wage growth stood at 3.0%.
After adjusting for inflation using the CPIH measure, regular wages increased by 0.6%, while total pay rose by 0.7%.
Using the standard Consumer Prices Index (CPI), which excludes owner-occupiers’ housing costs, real regular pay increased by 0.8% and total pay by 0.9%.
Payroll Employment Shows Limited Momentum
Separate figures from HM Revenue and Customs indicated continued weakness in payroll employment.
The number of payrolled employees declined by 111,000, or 0.4%, between August 2025 and August 2026. Nevertheless, employment was broadly unchanged between July and August, increasing by approximately 1,000 workers.
Early estimates for September showed a further annual decline of 66,000 employees, equivalent to 0.2%.
On a monthly basis, however, payroll employment increased by 13,000, bringing the total to approximately 30.3 million.
The ONS stressed that the September figures remain provisional and could change following future revisions.
Meanwhile, the number of people claiming unemployment-related benefits increased both monthly and annually, reaching an estimated 1.701 million in September.
What Does This Mean for the Bank of England?
The latest UK labour market data presents conflicting signals for policymakers.
On one hand, falling unemployment and rising employment suggest resilience in the economy. On the other, declining vacancies and slower wage growth point toward weaker hiring demand and potentially easing inflationary pressures.
These developments could influence expectations for future Bank of England interest rate decisions, particularly if wage pressures continue to moderate.
However, the ONS cautioned that the labour market has remained broadly stable throughout 2026. It also encouraged analysts to focus on longer-term trends rather than individual monthly readings, which can experience significant volatility.
Overall, the latest figures suggest that Britain’s labour market remains resilient in some areas, although weakening recruitment and slower wage growth could signal further challenges ahead.
