UK vacancies fall to lowest for five years as wages grow faster than expected

The level of unemployment in the UK fell slightly in a surprise drop to 4.9 per cent for the three months to May - but the wider picture is still one of caution and uncertainty in the jobs market.

That is highlighted by job vacancies falling to the lowest level in more than five years, as firms pull back hiring plans in the face of economic uncertainty and the surging cost of employment, which several business groups have spoken out against, urging Labour to change course.

Wage growth, meanwhile, stayed unchanged at 3.4 per cent - still outstripping inflation despite falling back recently, to muddy the mix of factors that the Bank of England have to factor in before their decision on interest rates later on Thursday .

It is expected that the Monetary Policy Committee will opt to hold rates at 3.75 per cent once more.

The Office for National Statistics ( ONS ) said vacancies tumbled by 19,000 quarter-on-quarter to 707,000 in the three months to May, which is the lowest since the three months to April 2021.

The ONS said the drop in vacancies was significant across retail and hospitality sectors and smaller employers, while the largest fall in the quarter was in professional services.

The number of number of workers on payrolls fell by 53,000 during April to 30.3 million, but the more timely flash estimate showed a rise of 2,000 last month, though the ONS stressed this is subject to revision.

Liz McKeown, ONS director of economic statistics, said: “The labour market remained broadly stable in the latest quarter, with further softening evident in some measures.

“Payroll numbers continued to fall over this period, with new recruits at their lowest level in five years.”

She added there were “some signs of workers moving into self‑employment”, while the vacancies decline signalled firms are “becoming more cautious about taking on new staff”.

The ONS said its vacancies survey showed some firms are putting recruitment on hold due to economic uncertainty and higher labour costs. The Government hiked employee National Insurance Contributions in April last year, while firms have also been hit by above-inflation rises in the minimum wage.

On Wednesday, AO World blamed a move to offshore hundreds of jobs overseas on Government measures that have increased staff costs in the UK.

Andrew Crawford, senior vice president at LHH UK and Ireland, said: “Today's labour market figures show the reality of rising employment costs and the National Insurance contributions hike. Despite growth at the beginning of the year, the current economic climate is forcing many employers to freeze hiring, negatively impacting the UK's job market.

“The impact is being felt as more workers are staying in roles, with 51 per cent worried about being made redundant by their current employer. This uncertainty is likely set to continue for a time as 9 in 10 UK businesses have made or are planning to make redundancies this year, with AI and automation being the top driver of layoffs for the first time.

“With redundancies on the rise and fewer vacancies opening it is becoming even harder to find a job. To support exiting workers, businesses must offer structured outplacement support to shorten the time it takes for them to find a new role and reskill to meet changing workforce demands.”

AJ Bell’s Danni Hewson, head of financial analysis, added: “Whilst the headline rate of unemployment has edged down slightly, pop the hood on the UK labour market and that good news is all but obliterated.

“The number of people starting new jobs has fallen to a five-year low, as has the number of vacancies. But a 0.3 per cent jump in those classed as ‘economically inactive’ could mean much of the fall in unemployment will simply be the result of job seekers giving up or changing tack.

“It’s been tough for businesses to deal with domestic policies that have increased the cost of labour, especially for part-time roles, and the instability and cost increases associated with the conflict in the Middle East have resulted in many employers pressing pause on potential growth plans.

“That lack of confidence is tough to overcome, and there is a real fear that younger workers will be badly scarred by what could be a protracted period of weakness in the jobs market.

“Some job seekers have decided to go down the self-employment route, but the number of people with second jobs has fallen. This could be because cost of living pressures have eased, or perhaps because part-time roles have become more difficult to find.”

Employee-heavy sectors such as retail and hospitality have been knocked particularly hard by the changes.

The ONS said on an annual basis, the wholesale and retail trade sector saw the largest fall in vacancies, down 13,000 in the three months to May, while hospitality recorded a 10,000 drop.

Work and Pensions Secretary Pat McFadden said: “This month’s figures show that there are 400,000 more people in work than this time last year, but we know ongoing instability in the M…