Britain’s unemployment rate fell unexpectedly to 4.7 per cent in the three months to August 2026, according to official data released on Tuesday, providing some relief for the Labour government ahead of its October 28 budget.

The Office for National Statistics (ONS) said the jobless rate dropped to its lowest level since the three months to July 2025.

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Analysts had expected the rate to remain at 4.9 per cent, the level recorded in the three months to July 2026.

The figures come as the government prepares to make difficult fiscal decisions amid concerns over living costs, youth unemployment and the cost of employing workers.

Despite the improvement in the overall unemployment rate, youth unemployment remains a significant challenge for the government.

Prime Minister Andy Burnham has warned that Britain faces an “economic catastrophe and moral failure” if it fails to address the number of young people aged 16 to 24 who are not in employment, education or training.

Burnham said: “We either invest in the success of our young people or pay for failure through the benefits system.”

The government has pledged to provide young people with a clearer pathway into employment and make changes to the welfare system to improve support and encourage participation in the labour market.

A government-commissioned review into youth unemployment, led by former Labour cabinet minister Alan Milburn, is expected to present proposed solutions next month.

The government also outlined plans on Monday to recruit thousands more apprentices under the age of 25 in sectors including accounting, law and consulting.

The fall in unemployment offers a positive signal, but analysts have cautioned against interpreting the figures as evidence of a sustained recovery.

Richard Carter, head of fixed-interest research at Quilter Cheviot, said signs of stabilisation in the labour market were welcome but warned that the recovery remained fragile.

He said the government would be keen to avoid measures that could further discourage businesses from hiring.

Other labour-market indicators point to continuing weaknesses.

The ONS reported that job vacancies fell by 21,000 to 691,000, while early estimates showed the number of payrolled employees increasing by 13,000 between August and September.

The combination of lower unemployment and declining vacancies suggests that the labour market remains under pressure, particularly for jobseekers trying to enter employment.

The latest figures arrive as Finance Minister John Healey prepares to present the government’s budget on October 28.

Healey has pledged to maintain fiscal discipline amid rising inflation and elevated government borrowing costs, limiting the room available for additional spending.

The government must balance its efforts to support households facing higher living costs with measures intended to encourage business investment, employment and economic growth.

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Although the fall in unemployment provides a welcome development ahead of the budget, persistent concerns over youth employment, recruitment and the cost of living are likely to remain central to the government’s economic agenda.