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 – but only when the effects of bonuses were included.
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.
That is because lower unemployment means more demand in an economy which has remained resilient despite the spike in cost of living pressures caused by the Middle East conflict to date.
London Stock Exchange Group data did, however, signal that a 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.
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