UK Vacancies Fall 21,000 as Small Firms Cite Rising Labour Costs

UK job vacancies fell by 21,000 in the three months to September to 691,000 — the largest drop since the start of the year and the lowest level in more than five years, according to the Office for National Statistics (ONS). Small businesses drove the decline, and they told the ONS the same thing: labour costs have become too expensive to keep hiring.

By Olivia Hart, Business Bearings

The number is unambiguous. Roughly one in thirty advertised jobs disappeared within a single quarter. Construction posted the largest decrease of any sector.

Why are small firms stopping hiring?

Three cost pressures sit behind the pullback, according to employer accounts relayed by the ONS. Energy costs have risen since the Iran war began. Increases in National Insurance contributions and the minimum wage have made staff more expensive. For a small business, those increases arrive together, not one at a time.

The ONS said small firms were citing labour costs as a key factor in scaling back recruitment. What the statistics office did not quantify is how much of the 21,000-vacancy fall is directly attributable to each cost driver — the causation rests on employer self-reporting, not modelling.

What happened to unemployment and pay?

The unemployment rate fell to 4.7% in the three months to August, down from 4.9% previously. Average earnings excluding bonuses rose 3.7% over the same period. Once inflation is stripped out, real wage growth was just 0.8% — the pay rise workers actually feel in their pockets is a fraction of the headline number.

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."

Freeman added: "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."

He confirmed the vacancy picture: "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."

The takeaway in plain words: fewer people are unemployed, but fewer jobs are being advertised — a labour market that is tightening rather than growing.

What does the government say?

Work and Pensions Secretary Pat McFadden framed the figures positively. They "show the resilience of our labour market", he said, with the UK's employment rate "now the third highest in the G7, despite a backdrop of global uncertainty".

McFadden conceded a weak spot: "too many young people still find themselves locked out of employment". He said the government is working with industry "to bring young people back into the labour market and prevent them from drifting into the welfare system".

No timeline, funding figure or policy mechanism accompanied that commitment. The promise of intervention, as yet, has no attached numbers.

How bad is the youth jobs picture?

Youth unemployment was 15.6% for those aged 16 to 24 in the June-to-August quarter. That improved on the 16.4% recorded in March to May, but it remains above the 14.6% rate seen in the same quarter a year earlier. A quarter-on-quarter gain masks a year-on-year deterioration of a full percentage point.

For context, the youth unemployment rate is more than three times the national rate of 4.7%. The improvement the government can point to is real; so is the backward slide against last year's baseline.

What does this mean for the months ahead?

The figures describe a labour market standing still rather than contracting sharply. Payroll employment may be "starting to level off", in Freeman's words, but vacancies at a five-year low mean fewer entry points for jobseekers — particularly the young workers McFadden says are locked out.

The test for coming quarters is whether small firms absorb higher labour costs and resume hiring, or whether the vacancy floor keeps sinking. Freeman's own framing — a market "broadly flat in 2026" — offers little evidence of either yet.