UK job vacancies fall by 21,000 as small firms curb hiring

Unemployment rate dips to 4.7% ahead of Chancellor's Budget; youth joblessness sparks warning from PM

By LineZotpaper

Published20 October 2026

Read Time3 min

Sources2 outlets

UK job vacancies recorded their sharpest decline since the start of the year over the three months to September, falling by 21,000 to 691,000 and dropping to their lowest level in more than five years. The Office for National Statistics (ONS) attributed the drop primarily to small and medium-sized businesses scaling back recruitment, citing increased labour costs driven by rising energy prices, higher National Insurance contributions, and the minimum wage. The figures, the last major snapshot before Chancellor John Healey's first Budget next week, showed the unemployment rate unexpectedly fell to 4.7%, its lowest in over a year.

ONS deputy director of labour market statistics David Freeman described the market as "broadly flat," with the employment rate edging up and "a small drop in unemployment." He noted that while the number of workers on payroll had dipped, data for the most recent month suggested it was beginning to level off. The largest decrease in vacancies was concentrated in the construction sector, driven by smaller businesses.

Average earnings excluding bonuses rose 3.7% in the three months to August, representing a 0.8% increase in real terms after inflation. Pat McFadden, the Secretary of State for Work and Pensions, said the figures "show the resilience of our labour market" and noted that the UK's employment rate is the third highest in the G7. However, he acknowledged that "too many young people still find themselves locked out of employment" and said the government is working with industry to bring them back into the labour market.

Youth unemployment remains a significant concern. The unemployment rate for those aged 16 to 24 was 15.6% in the June-to-August quarter, down from 16.4% in the previous quarter but higher than the 14.6% recorded a year ago. Separate ONS data indicates nearly one million young people are not in education, employment, or training (Neet). On Monday, Prime Minister Andy Burnham warned the UK faces an "economic catastrophe and moral failure" due to high levels of youth unemployment.

Economists offered mixed assessments. Ashley Webb, senior UK economist for Capital Economics, called the fall in the unemployment rate "unexpected" and suggested the labour market "continues to recover." But he cautioned that with business energy costs likely to fall only slowly, hiring will stay subdued. Louise Murphy of the Resolution Foundation said the labour market "has performed poorly in recent years" but pointed to "green shoots" in rising employment levels and stabilising private sector wage growth.

The quality of ONS statistics has been criticised, with a review last year finding "deep seated" issues with the body. The Labour Force Survey has suffered from low response rates, though the ONS reported on Tuesday that response levels had improved, even as "some volatility" remains in the statistics.

Analysis

Why This Matters

The sharp fall in vacancies signals that small businesses, which form the backbone of the UK economy, are struggling under rising operational costs, potentially slowing overall economic growth.
Youth unemployment at 15.6% and nearly one million young people classified as Neet represent a significant social and economic risk that the government is under pressure to address.
The data provides a key baseline for Chancellor Healey's first Budget, setting the stage for potential interventions on employment support, business taxation, and energy costs.

Background

The UK labour market has been sending mixed signals. Post-pandemic, the economy experienced high inflation and acute labour shortages. More recently, business costs have escalated due to a combination of global energy price shocks, rises in employer National Insurance, and increases to the National Living Wage. The government has made getting people into work a key priority, but faces headwinds from global uncertainty.

Key Perspectives

The Government (Pat McFadden, PM Andy Burnham): Emphasises overall market resilience (third highest G7 employment rate) while expressing serious alarm over youth unemployment, framing it as a moral and economic imperative to act.
Small Businesses (sourced via ONS): Are identified as the primary drivers of the vacancy drop. They explicitly cite the combined burden of labour costs—energy, National Insurance, and the minimum wage—as the reason for pulling back on hiring.
Economists (Ashley Webb, Louise Murphy): Are split between identifying unexpected resilience (falling overall unemployment) and warning of sustained structural weakness (subdued hiring, poor performance in recent years), with some seeing emerging green shoots.

What to Watch

The content of Chancellor John Healey's Budget next week, specifically any measures aimed at reducing business costs or stimulating youth employment.
The trajectory of energy costs for businesses, which remain a major variable influencing future hiring decisions.
Whether the ONS's improved survey response rates lead to more reliable data in subsequent releases, resolving the volatility flagged in the current figures.

Sources

Job vacancies fall as small firms cut back on recruitment · BBC News
Job vacancies fall as small firms cut back on recruitment · BBC News

Checked

11 claims in this story checked against 1 source: 6 supported.

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SupportedHeadline: UK job vacancies fell by 21,000 as small firms curbed hiring.BBC News: “Vacancies fell by 21,000 in the three months to September to 691,000”
SupportedSummary: unemployment rate dips to 4.7% ahead of the Chancellor's Budget.BBC News: “the unemployment rate fell to 4.7% in the three months to August”
SupportedSummary: youth joblessness sparks a warning from the PM.BBC News: “Prime Minister Andy Burnham warned the UK faces an "economic catastrophe and moral failure" due to high levels of youth unemployment”
SupportedVacancies fell to their lowest level in more than five years.BBC News: “The number of job vacancies fell to its lowest level in more than five years, the figures indicated”
Partly supportedThe ONS attributed the vacancy drop primarily to small and medium-sized businesses scaling back, citing labour costs driven by energy prices, National Insurance and the minimum wage.BBC News: “concentrated mainly within smaller businesses, which cite increased labour costs as a key factor.”
Partly supportedThe unemployment rate unexpectedly fell to 4.7%.BBC News: “said the fall in the unemployment rate was "unexpected"”
Partly supportedFreeman said the labour market was 'broadly flat' and the most recent payroll data suggested it was beginning to level off.BBC News: “data for the most recent month suggests that might be starting to level off”
Partly supportedAshley Webb said that with energy costs likely to fall only slowly, hiring will stay subdued.BBC News: “with businesses' energy costs likely to fall only slowly, we still think hiring will stay subdued”
SupportedUnemployment for those aged 16 to 24 was 15.6% in June to August, down from 16.4% in the previous quarter and up from 14.6% a year earlier.BBC News: “the unemployment rate for those aged 16 to 24 was 15.6% in the June to August quarter. While that was down from 16.4% in the March to May period, it was still higher than the rate of 14.6% seen in the June-to-August period last year.”
SupportedAverage earnings excluding bonuses rose 3.7% in the three months to August, a 0.8% real-terms rise after inflation.BBC News: “Average earnings excluding bonuses rose 3.7% in the three months to August. Taking inflation into account, wages grew 0.8% in real terms.”
Partly supportedPat McFadden said the figures 'show the resilience of our labour market' and that the employment rate is the third highest in the G7.BBC News: “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"”