Britain’s labour market showed surprising resilience in the latest official figures, but a continued fall in vacancies pointed to a less confident outlook for hiring and economic growth.

The unemployment rate fell to 4.7% in the three months to August, below the 4.9% forecast by economists, according to figures reported on Tuesday. Average annual earnings growth eased to 3.7%, suggesting that pay pressures may be moderating while remaining well above the Bank of England’s 2% inflation target.

Vacancies continue to fall

The headline improvement in unemployment was tempered by a 2.9% quarterly decline in vacancies. The figures indicate that companies are becoming more cautious about expanding their workforces as higher employment costs, borrowing costs and subdued demand weigh on business decisions.

The contrast between a lower unemployment rate and falling vacancies will be closely watched by policymakers. A cooling labour market could help reduce domestic inflationary pressure, but a prolonged decline in recruitment would also risk weakening household incomes and consumer spending.

Implications for interest rates

The data will feed into the Bank of England’s assessment of whether wage growth is slowing sufficiently to support lower interest rates. Pay growth has moderated from earlier peaks, but remains strong enough to complicate efforts to return inflation sustainably to target.

Markets were already expecting a cautious session for UK equities, with the FTSE 100 called to open about 47 to 49 points lower after a sharp fall on Monday. Investors were weighing the labour-market figures alongside weaker global technology sentiment and rising concerns about economic momentum.

Businesses remain cautious

The latest figures add to evidence that businesses are protecting margins and limiting recruitment rather than making large expansion commitments. Smaller companies in particular have been reluctant to hire as labour costs rise and demand remains fragile.

The government is under pressure to improve the conditions for business investment. Prime Minister Andy Burnham was due to urge company leaders to support a “culture shift” towards risk-taking and entrepreneurship, while critics argued that higher business costs and additional regulation were undermining hiring and investment.

For the economy, the immediate picture is mixed: employment has held up better than expected, but the fall in vacancies suggests that the labour market’s resilience may be becoming harder to sustain.