Jobless rate falls but small firms cut back hiring

Job vacancies in the UK have seen their largest fall since the start of the year as smaller businesses cut back on recruitment, official figures indicate.

Vacancies fell by 21,000 in the three months to September to 691,000, according to the Office for National Statistics (ONS), which said small firms were citing labour costs as a key factor in scaling back hiring.

Energy costs have risen since the Iran war began, and companies have also said that increases in National Insurance and the minimum wage have made it more expensive to employ staff.

The ONS figures also showed the unemployment rate fell to 4.7% in the three months to August, the lowest for more than a year.

The figures are the last official snapshot of the jobs market before Chancellor John Healey presents his first Budget next week.

ONS deputy director of labour market statistics, David Freeman, said the labour market remained "broadly flat", with the latest data showing 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," he said.

"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 number of job vacancies fell to its lowest level in more than five years, the figures indicated, with the largest decrease in construction jobs.

Average earnings excluding bonuses rose 3.7% in the three months to August. Taking inflation into account, wages grew 0.8% in real terms.

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

However, he said that "too many young people still find themselves locked out of employment".

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

The latest ONS figures showed the unemployment rate for those aged 16 to 24 was 15.6% in the June to August quarter. While that was down from 16.4% in the March to May period, it was still higher than the rate of 14.6% seen in the June-to-August period last year.

Separate ONS figures have indicated that nearly one million young people in the UK are not in education, employment or training - or "Neet"

On Monday, Prime Minister Andy Burnham warned the UK faces an "economic catastrophe and moral failure" due to high levels of youth unemployment.

Ashley Webb, senior UK economist for Capital Economics, said the fall in the unemployment rate was "unexpected", and that it suggests the labour market "continues to recover".

But "with businesses' energy costs likely to fall only slowly, we still think hiring will stay subdued," he said.

Louise Murphy, senior economist at the Resolution Foundation, said the labour market "has performed poorly in recent years as the number of jobs has fallen and pay growth weakened".

But she added that the UK's "recent bout of economic resilience may finally be creating some green shoots", pointing to "rising employment levels and private sector wage growth stabilising".

The quality of ONS statistics has been criticised in recent years, with a review last year finding "deep seated" issues with the body.

The Labour Force Survey, which it uses to report payroll and employment figures, has suffered from low response rates.

In an update on Tuesday, the ONS said that response levels had improved, but that "some volatility" remained in the statistics.