UK unemployment rate falls to lowest level since July last year

The UK's unemployment rate has fallen to 4.7%, in a set of official figures that will support the case for a Bank of England interest rate hike next month.

The Office for National Statistics (ONS) reported a dip in the jobless rate over the three months to August - from 4.9% recorded last month - to stand at its lowest level since July last year.

Economists had expected an increase to 5%, given the burden of rising costs for employers.

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The wider figures also showed a pick-up in the pace of wage growth when the effects of bonuses were excluded.

ONS deputy director of labour market statistics, David Freeman, said: "While the labour market remains broadly flat in 2026, data from the latest quarter shows the employment rate edging up and a small drop in unemployment.

"The number of workers on payroll remains slightly down over the same period, though data for the most recent month suggests that might be starting to level off.

"The number of vacancies has seen its largest fall since the start of the year, concentrated mainly within smaller businesses, which cite increased labour costs as a key factor.

"Regular wage growth remained relatively stable, though total pay - including bonuses - has eased to its lowest rate in nearly six years."

The data was released against a backdrop of rising challenges in the economy, with an energy-led surge in the rate of inflation placing renewed pressure on businesses and family finances alike.

While some help is expected on fuel duty in the chancellor's budget next week, along with targeted energy bill support, the Bank of England is widely tipped to raise borrowing costs through an interest rate hike just over a week later, to help tackle the growing inflation problem.

The case for a rise - from these employment figures - is bolstered by the reduction in the jobless rate and rising regular wage settlements.

That is because lower unemployment means more demand in an economy, one that has remained resilient despite the spike in cost-of-living pressures caused by the Middle East conflict to date.

The wage figures released today showed average wages, excluding bonuses, growing at a rate of 3.7% - up from 3.5%. The growth was fuelled by public sector awards above 6% as private sector growth remained static at 3% and below the rate of inflation.

The Bank would be worried if wages were to grow widely as high pay awards can stoke the pace of price increases beyond the short term.

London Stock Exchange Group data signalled that a rate rise from 3.75% to 4% was already largely locked in before the ONS figures were released, as 95% of market participants believed it was imminent.

Emeritus Professor Joe Nellis, head of economic research at the advisory firm MHA, said of the the employment figures: "The drop in UK unemployment to 4.7% provides a major boost for the chancellor ahead of the autumn budget, reversing a worrying trend marked by falling vacancies and falling confidence.

This follows the upbeat news from the IMF last week that the economy is expected to grow by 1.3% this year, placing the chancellor in a better-than-expected position as we approach the...budget.

"However, this should not be mistaken for a decisive turning point. The emerging picture for 2027 is one of an economy marked by weak recruitment and cautious business confidence, conditions that are likely to slow down growth in the months ahead."

(c) Sky News 2026: UK unemployment rate falls to lowest level since July last year