UK unemployment fell but job vacancies hit a 12-year low
The headline unemployment rate dropped, but a massive decline in open roles shows companies are freezing hiring due to costs.
Market · Source: FE News
What happened
The UK government released its October 2026 labour market data. The headline numbers look positive at first glance. The unemployment rate fell to 4.7 percent. The overall employment rate for people aged 16 to 64 edged up to 75.3 percent. At the same time, the economic inactivity rate decreased slightly to 20.9 percent.
However, the number of job vacancies tells a different story. Open roles dropped by 21,000 to 691,000 for the quarter. Outside of the pandemic period, this is the lowest number of job openings since 2014. The Office for National Statistics described the overall labour market as broadly flat.
Wage growth is also slowing down. Total pay growth, including bonuses, dropped to 3.7 percent. This is the lowest rate of wage growth in nearly six years. The number of payrolled employees also fell by 111,000 over the year leading up to August 2026.
By the numbers
- 691,000 — Total job vacancies, the lowest level since 2014 excluding the pandemic
- 4.7% — The UK unemployment rate, which slightly decreased
- 3.7% — Total pay growth, the lowest rate in nearly six years
- 2.4 — The number of unemployed people per job vacancy
Why it matters
This data shows a job market that is essentially stuck in a waiting room. Companies are not firing workers in large numbers, which keeps the unemployment rate low. But they are also refusing to hire new staff. Small businesses in particular report that high labour costs are stopping them from opening new roles. For job seekers, this means the competition for every open role is getting much harder. There are now 2.4 unemployed people for every single job vacancy.
When adjusted for inflation, real wage growth is barely positive. Annual growth in real terms was just 0.8 percent for regular pay and 0.9 percent for total pay. This means that even for those who have jobs, paychecks are barely keeping up with the cost of living. Commentators note that this modest wage growth still puts pressure on the central bank regarding interest rate decisions. A prolonged squeeze on finances impacts living standards across the board.
Who this hits
Young workers and new grads
There are now 715,000 young people aged 16 to 24 who are unemployed. This is 54,000 higher than it was a year ago, showing that early career workers are bearing the brunt of the hiring freeze.
Small business job seekers
Smaller firms account for most of the net decline in job vacancies. They are citing increased labour costs as the main reason they cannot afford to recruit right now.
Public sector workers
Public sector employees are seeing better wage growth than the private sector. Their annual regular earnings grew by 6.3 percent, compared to just 3.0 percent for private sector workers.
Older workers
Rising living costs and the threat of higher interest rates are hitting people in their 50s and 60s hard. Many are struggling to support families, pay mortgages, and save for retirement simultaneously.
What to do this week
- Look past the headline unemployment rates when evaluating the health of the job market and focus on the number of actual vacancies.
- Expect longer job searches and more competition since there are currently more than two unemployed people for every open role.
- Target larger companies in your job search as the data shows small businesses are leading the current freeze in recruitment.
- Factor in slow wage growth when negotiating offers and understand that real terms pay growth is currently less than one percent.
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My take
I always tell job seekers to read the vacancies, not just the headline unemployment rate. When companies stop hiring but hold onto current staff, the market looks fine on paper but feels terrible for anyone trying to break in. You have to understand the numbers to know what you are truly up against.