The number of job vacancies across the UK has fallen to its lowest level in five years, highlighting growing caution among employers despite a labour market that has proven more resilient than many economists expected.
New figures from the Office for National Statistics (ONS) show vacancies dropped by 19,000 between March and May, leaving a total of 707,000 open positions – the lowest figure recorded since early 2021.
The data also showed the unemployment rate edged down to 4.9% in the three months to April, compared with 5% in the previous reporting period. However, employment levels also declined, particularly in the retail and hospitality sectors, suggesting businesses have become more cautious about hiring amid global economic uncertainty.
Despite the slowdown in recruitment, wage growth remained stronger than expected. Average earnings excluding bonuses increased by 4.4% annually, while regular pay growth held steady.
Economists had forecast a slight slowdown in wage growth and expected unemployment to remain unchanged.
Public sector workers continued to see stronger pay increases than those in the private sector, with annual regular earnings growth reaching 5.1% compared with 2.9% in the private sector.
The figures come ahead of the Bank of England’s latest interest rate decision, with policymakers expected to keep rates unchanged at 3.75%.
Ashley Webb, an economist at Capital Economics, said the overall picture remains concerning despite stronger wage growth.
“The big picture is that the labour market is still very weak, and likely to weaken further.”
Analysts noted that stubborn wage growth could complicate efforts to bring inflation back to the Bank of England’s 2% target, as higher earnings may support consumer spending and keep price pressures elevated.
Official figures released earlier this week showed inflation remained unchanged at 2.8% in May.
Webb said the latest data could strengthen arguments for future rate increases if inflation pressures persist.
“Today’s data release increases the chances of one or two ‘insurance’ hikes later this year.”
However, he stressed that any rate increases remain unlikely while economic growth remains subdued.
Other economists suggested policymakers would pay closer attention to private sector wages, which continue to slow.
James Smith, an economist at ING, said: “While the Bank of England can’t totally ignore [the public sector], it remains much more focused on the private sector. And here pay growth is still easing off.”
He added that private sector wage growth has fallen significantly over the past year and is likely to decline further in the coming months.
Meanwhile, businesses appear increasingly reluctant to recruit permanent full-time staff as uncertainty surrounding global events weighs on confidence.
PAYE payroll employment rose by just 2,000 in May, only partially recovering from a sharp fall of 53,000 recorded in April.
Recent concerns that rising energy costs linked to tensions in the Middle East would trigger widespread job losses have eased somewhat following a decline in oil prices, fuelled by hopes of a potential agreement between the United States and Iran.
Work and Pensions Secretary Pat McFadden said the figures showed the labour market remained relatively strong despite ongoing challenges.
“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 Middle East is causing uncertainty in our labour market.”
He added: “We have the right economic plan for growth and stability in a volatile world.”
However, experts warned that many workers are still facing pressure from rising living costs and weaker wage growth in parts of the economy.
Louise Murphy, senior economist at the Resolution Foundation, said: “The UK labour market is weaker than it has been in recent years.”
She pointed to rising levels of self-employment, increased use of zero-hours contracts and growing youth unemployment as signs of a softening jobs market.
Murphy also warned that private sector workers could face further financial pressure over the coming months.
“The real wages of private sector workers have now been falling since last October. With further inflation rises expected over the coming months, these workers should brace themselves for this squeeze to continue over the summer.”