UK Unemployment Falls to 4.7% as Vacancies Drop and Total Pay Growth Slows

Britain's unemployment rate fell to 4.7% in the three months to August, the Office for National Statistics said on Tuesday 20 October. That is 0.1 percentage points lower than both the previous quarter and a year earlier, and below the 4.9% the ONS reported for May to July a month ago. More people were in work, fewer were sitting outside the labour force, and the employment rate rose to 75.3%.

Other parts of the report were softer. Job vacancies fell by 21,000 to 691,000 in July to September, the largest quarterly drop since the start of the year. Growth in total pay, which includes bonuses, slowed to 3.7%, the weakest rate since late 2020. The ONS summed it up plainly: the labour market “remains broadly flat in 2026”.

Sterling still had a good day. GBP/USD rose from about 1.3330 before the 07:00 UK release to 1.3359 within the hour, and EUR/GBP slipped from 0.8423 to 0.8407, a sign the move was about the pound and not only the dollar. The pair then climbed to 1.3409 in the New York morning, as the dollar weakened across the board, and was trading near 1.3380 at 18:00 UTC.

What the ONS reported

Two sources feed the headline numbers. The Labour Force Survey, a household survey, gives the unemployment, employment and inactivity rates. Tax records from HM Revenue and Customs give a monthly count of people on company payrolls. This month the survey looked better than the payroll data, a gap the ONS has asked users to keep in mind.

Survey figures improved. Unemployment among people aged 16 and over dropped to 4.7%. Employment among 16 to 64 year olds rose 0.2 points to 75.3%, and economic inactivity, which counts people who are neither working nor looking for work, fell to 20.9%. Survey response levels are now close to their pre-pandemic level, according to the statisticians, though they still advise caution with short-term changes and recommend reading the survey alongside the other indicators.

Payroll data were flatter. The number of payrolled employees rose by just 1,000 between July and August, and fell by 111,000, or 0.4%, compared with August 2025. Last month's early estimate had shown a fall of 26,000 in August, so the revision turned a drop into a small gain. The first estimate for September showed a rise of 13,000 to 30.3 million, which the ONS described as provisional and likely to be revised. Over June to August, the period that matches the survey, payrolls were 37,000 lower than in the previous quarter.

The Claimant Count, which measures people claiming unemployment-related benefits, rose on both the month and the year to an estimated 1.701 million in September. According to the ONS, recent revisions to that count have tended to be downwards.

Fewer vacancies, and smaller firms hold back

Vacancies are where the cooling shows most clearly. At 691,000 in July to September, they were 2.9% lower than in the spring and 5.1% lower than a year earlier. Outside the pandemic years, the last time there were this few open jobs was July to September 2014, when there were 686,000.

The ONS said feedback from its vacancy survey suggests smaller firms may not be recruiting because of higher labour costs. That fits with a slow drift rather than a sudden shock: vacancies have fallen by 28,000 since January to March, and this quarter's 21,000 drop matched the fall seen at the start of the year.

For the Bank of England, falling vacancies matter because they usually lead pay growth lower with a lag. Fewer open roles give workers less bargaining power, which should, over time, ease the pressure on wages and on service-sector prices. That process is slow, so one quarter's fall is a signal, not proof.

Pay growth: steady wages, smaller bonuses

Regular pay, which leaves out bonuses, grew 3.7% from a year earlier in June to August. The ONS said this rate has been relatively stable over six three-month periods in a row, after a year of slowing growth. Total pay also grew 3.7%, down from 3.9% in the previous period. It was last lower in August to October 2020, when it was 2.8%.

The split between sectors is wide. Regular pay rose 6.3% in the public sector and 3.0% in the private sector, and the ONS warned that public sector figures are being pushed around by the timing of pay awards this year. For inflation, private sector pay is the better guide, and 3.0% is a modest pace by recent standards.

After adjusting for inflation, workers are only just ahead. Using CPIH, which includes owner occupiers' housing costs, real regular pay grew 0.6% and real total pay 0.7%. On the CPI measure, the figures were 0.8% and 0.9%. With CPI inflation at 3.1% in August, household budgets are barely growing in real terms, which helps explain why spending has been soft.

Source: Office for National Statistics, Labour market overview, UK: October 2026. Rates are annual growth in average weekly earnings, three months on the same period a year earlier.

What it means for the pound and the Bank of England

The Bank of England held Bank Rate at 3.75% on 17 September, with six members voting to hold and three wanting a change. Its next decision is on 5 November. Tuesday's figures give each side something. A lower jobless rate and steady regular pay argue against any rush to cut, while falling vacancies, weak payroll growth and slowing total pay support the view that the jobs market is loosening.

Markets seemed to read the report as slightly positive for sterling. The early gain was modest, about 30 pips in GBP/USD, and the bigger move came later in the day, when the dollar fell against most currencies during US hours. By 18:00 UTC the pound had broken above Friday's high of 1.3371 and was testing the area just below 1.3420, where its 50-day average sits on our daily candles.

Wednesday brings the bigger test. The ONS publishes September consumer prices at 07:00 UK time, 06:00 UTC. In August, CPI inflation was 3.1%, core inflation 2.6% and services inflation 3.4%. A rise in services prices would sit awkwardly with steady pay and could push the pound higher, while a soft reading would put the focus back on the weaker parts of today's jobs report. Retail sales for September follow on Friday.

What traders can take from it

A jobs report with mixed signals is easy to over-trade. These points help keep it in proportion.

• Read the unemployment rate together with payrolls. The survey and tax data told different stories this month, and the ONS itself advises using both.
• Watch private sector pay more than the headline. At 3.0%, it is the cleaner guide to inflation pressure from wages.
• Treat the September payroll figure as a first draft. Last month's August estimate moved from a fall of 26,000 to a rise of 1,000.
• Keep size small into Wednesday's CPI. Two UK releases on consecutive mornings can reverse each other, and spreads widen at 06:00 UTC.
• Check where GBP/USD sits against 1.3310, the old range top, and the 1.3410 to 1.3420 zone. Those are the levels our daily analysis is watching.

For today's levels, see our GBP/USD analysis. Release times for the rest of the week are on the economic calendar, and our week-ahead story sets out each UK release. Size each trade with the position size calculator.

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Sources: Office for National Statistics: Labour market overview, UK: October 2026 · Office for National Statistics: Consumer price inflation, UK: August 2026 · Bank of England: Bank Rate · Office for National Statistics: release calendar