The UK's unemployment rate has fallen to its lowest level in more than a year, reaching 4.7% in the three months to August, according to the Office for National Statistics. However, the improvement masks a weaker picture in the jobs market overall, with job vacancies falling by 21,000 in the three months to September to stand at 691,000, the ONS said. Small firms have scaled back recruitment, citing labour costs as a key factor in their hiring decisions.
The number of vacancies has hit its lowest level in more than five years, with the largest decreases concentrated in construction. The ONS indicated that smaller businesses have been particularly affected by increased costs, including rises in National Insurance and the minimum wage. Energy costs have also risen since the Iran war began, adding to the burden on employers. Payroll numbers remain slightly down over the same period, though the most recent month's data suggests this trend may be starting to level off, the ONS deputy director of labour market statistics David Freeman said.
Average earnings excluding bonuses rose 3.7% in the three months to August, up from 3.5% the previous month. In real terms, accounting for inflation, wages grew 0.8%. For young people aged 16 to 24, unemployment stood at 15.6% in the June to August quarter, down from 16.4% in the March to May period but higher than the 14.6% rate seen in the same quarter last year. Separate ONS data showed that nearly one million young people are not in education, employment or training.
Pat McFadden, Secretary of State for Work and Pensions, said the figures demonstrate the resilience of the UK's labour market, with employment now ranked third highest in the G7 despite global uncertainty. However, he acknowledged that too many young people remain locked out of employment and said the government is working with industry to bring young people back into the labour market. Prime Minister Andy Burnham warned on Monday that the UK faces an economic catastrophe and moral failure due to high youth unemployment levels.
Economists offered mixed interpretations of the data. Ashley Webb, senior UK economist for Capital Economics, described the fall in unemployment as unexpected and suggested the labour market continues to recover. However, he cautioned that with energy costs likely to fall only slowly, hiring is expected to remain subdued. Louise Murphy, senior economist at the Resolution Foundation, noted that the labour market has performed poorly in recent years but said recent economic resilience may be creating green shoots, pointing to rising employment levels and stabilising private sector wage growth.
The ONS has faced criticism over the quality of its statistics in recent years, with a review finding deep-seated issues. The Labour Force Survey, which reports payroll and employment figures, has suffered from low response rates. The ONS said on Tuesday that response levels had improved, though some volatility remains in the statistics. For savers, borrowers and businesses, the mixed labour market signals mean wage growth may help household finances, but subdued hiring could limit credit demand and consumer spending.