UK job vacancies hit five-year low as hiring stalls

The number of job vacancies in Britain has fallen to a five-year low, signalling a significant slowdown in the labour market ahead of the upcoming Budget. According to the Office for National Statistics, job openings dropped below 700,000 for the first time since April 2021, with figures for the three months to September standing at 691,000. This represents a decline from 704,000 in the previous quarter and marks the largest quarterly fall since the start of the year. The drop in postings has prompted concerns among economists that the economy is cooling, even as other indicators suggest a degree of stability in overall employment levels.

Pat McFadden, the Work and Pensions Secretary, defended the government’s record by highlighting the resilience of the labour market. He noted that unemployment has fallen and that the UK’s employment rate is now the third highest in the G7, despite a backdrop of global uncertainty. However, Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, described the prolonged drop in vacancies as a flashing red warning light. He attributed the weak hiring environment to the growing use of artificial intelligence, alongside higher employment costs driven by a rising minimum wage and steep National Insurance taxes. These factors are creating pressure on businesses to hold off on recruitment, a trend that is particularly evident in the manufacturing sector.

Wage growth has also slowed, with total pay excluding bonuses rising by 3.7 per cent in the three months to August, down from 3.9 per cent in the period to July. This is the slowest pace of growth since the second pandemic lockdown in November 2020, highlighting the cost-of-living pressures facing households. Martin Beck, chief economist at WPI Strategy, warned that higher energy prices are pushing inflation up just as earnings growth weakens, threatening a renewed squeeze on living standards. This dynamic places additional pressure on Chancellor John Healey, who is seeking to provide household finances with breathing room in his first Budget next week.

Despite the drop in vacancies, the unemployment rate fell unexpectedly from 4.9 per cent to 4.7 per cent in September, its lowest level since July 2025. The number of people on payrolls edged up by 13,000 to 30.3 million. Andrew Griffith, the shadow chancellor, criticised the government’s economic policies, arguing that jobs taxes and red tape are having devastating consequences for those seeking work. In contrast, Andrew Wishart of Berenberg suggested that the labour market is showing the first signs of stabilising, although he noted that payroll employment has fallen by 181,000 since the government announced plans to raise the minimum wage and hike payroll tax in October 2024.

The decline in vacancies has been particularly pronounced among smaller firms. The ONS reported that the largest decrease was for businesses with one to nine employees, where vacancies fell by 32.8 per cent over the year. Maxine Bligh, interim chief executive of the Recruitment and Employment Confederation, described the fall as a bitter blow for jobseekers, indicating that employers remain cautious. She urged the Chancellor to use the Budget to boost business confidence, particularly among smaller firms facing higher employment costs. Meanwhile, the London Chamber of Commerce and Industry warned that nine in ten businesses in the capital did not attempt to recruit new staff in the second quarter, citing the high cost of hiring.

Youth unemployment has also seen a sharp decline, dropping from 16.4 per cent to 15.6 per cent in the three months to August. Sanjay Raja, chief UK economist at Deutsche Bank, noted that this was a significant surprise, as expectations were skewed towards an increase in the jobless rate. The drop came mostly from a fall in youth unemployment, which decreased by 45,000 in the period. However, the unemployment rate for under-25s remains far above the UK average of 4.7 per cent. Businesses have warned that they have halted the hiring of young people following inflation-busting increases to the minimum wage and the rise in employers’ National Insurance contributions in April 2025.

Market reactions to the data have been mixed. The pound rose against the dollar and the euro, while the FTSE 100 and FTSE 250 indices fell. The data has also cemented the case for the Bank of England to raise interest rates next month, with traders putting the odds of a November hike at 95 per cent. Thomas Pugh, chief economist at RSM UK, stated that the stronger economy and stabilising labour market mean there is no longer a trade-off between low growth and high inflation for policymakers. As the government prepares for the Budget, the focus remains on whether targeted interventions can reverse the trend of falling vacancies and support a convincing recovery in demand for workers.