Job Vacancies Fall to Five-Year Low as Small Firms Cite Labour Costs

UK job vacancies have fallen to their lowest level in more than five years, reaching 691,000 in the three months to September 2026, as small businesses cite rising labour costs as a key factor in scaling back recruitment, according to official figures from the Office for National Statistics^[1].

The ONS reported that vacancies fell by 21,000 in the three months to September, with the decline "concentrated mainly within smaller businesses, which cite increased labour costs as a key factor"^[1]. Construction jobs saw the largest decrease across all sectors^[1].

The data, published on 20 October 2026, represents the last official snapshot of the jobs market before the Budget^[1]. While the UK unemployment rate fell to 4.7% in the three months to August - the lowest since July 2025 - the hiring slowdown signals mounting pressure on small firms^[1].

Rising Employment Costs Drive Hiring Freeze

David Freeman, ONS deputy director of labour market statistics, said the labour market remained "broadly flat", with the number of workers on payroll "slightly down over the same period, though data for the most recent month suggests that might be starting to level off"^[1].

The ONS specifically noted that "the number of vacancies has seen its largest fall since the start of the year"^[1]. Companies have reported that increases in National Insurance and the minimum wage have made it more expensive to employ staff, while energy costs have risen since the Iran war began^[1].

Average earnings excluding bonuses rose 3.7% in the three months to August, up from 3.5% the previous month^[1]. Taking inflation into account, wages grew 0.8% in real terms^[1].

Youth Unemployment Remains Elevated

The unemployment rate for those aged 16 to 24 stood at 15.6% in the June to August quarter, down from 16.4% in the March to May period but still higher than the 14.6% rate recorded in the June-to-August period last year^[1].

Pat McFadden, the Secretary of State for Work and Pensions, said the figures "show the resilience of our labour market" with the UK employment rate "now the third highest in the G7, despite a backdrop of global uncertainty"^[1]. However, he acknowledged that "too many young people still find themselves locked out of employment"^[1].

The government is working with industry "to bring young people back into the labour market and prevent them from drifting into the welfare system", McFadden added^[1].

Budget Tax Debate Intensifies

The vacancy figures arrive as Chancellor John Healey prepares next week's Budget, having dismissed calls from some Labour MPs to increase Capital Gains Tax (CGT)^[2]. As first reported by the Times^[2], Healey is minded not to increase CGT following warnings that it could end up costing the government money if wealthy people leave the country or defer selling off assets^[2].

Conservative shadow chancellor Andrew Griffith said on X that "businesses can't afford to hire"^[1]. "This is what happens when you attack employers, tax jobs, and put up red tape," he added^[1].

The chancellor gave an indication of his approach last month in a speech when he spoke about the importance of businesses and self-employed people making profits: "I want to see this country as a country of wealth creation. I want our government decisions and policies to raise the levels of confidence, and investment, and profit in British business"^[2].

UK Company Register Context

Across the UK company register, 5.4 million companies are currently active out of a total register of 6.9 million companies, according to CompanyPulse data^[3]. In the seven days to 20 October 2026, 13,947 companies were incorporated UK-wide^[3].

The largest sectors by company count on the UK register include real estate (with 448,324 companies in other letting and operating of own or leased real estate), management consultancy (276,256 companies), and retail sale via internet (210,409 companies)^[3]. Construction-related activities account for substantial portions of the register, including 113,811 companies in development of building projects and 100,219 in construction of domestic buildings^[3].

London remains the most concentrated location for registered companies with 1.06 million, followed by Manchester (105,030), Birmingham (93,116), and Glasgow (71,526)^[3].

Outlook

The ONS vacancy data points to continued pressure on small business hiring in the near term, particularly as companies await Budget measures that may affect employment costs. With construction showing the steepest decline in job openings and labour costs cited as the primary constraint, the sectors most exposed to wage pressures may face further recruitment challenges in the months ahead.

Analysts noted that while the jobs market shows signs of resilience, with unemployment at its lowest in over a year, the weakness in hiring activity suggests employers remain cautious about expansion plans amid economic uncertainty and rising operational costs.