New job starts hit five-year low as firms grow cautious

The count of individuals taking on new positions has dropped to its lowest level in the past five years, based on new data from the Office for National Statistics, as businesses become more hesitant regarding recruitment. New appointments totalled approximately 540,000 in April—the lowest monthly figure since March 2021—whilst employment vacancies continued their downward trajectory, dropping to 707,000 in the March to May period. The ONS said the labour market stayed “broadly stable” overall, though a number of industries, including professional services, retail and hospitality, have experienced notable declines in job openings. The data come as the Bank of England prepares to announce its interest rate decision on Thursday, with economists broadly anticipating the Bank to maintain its key rate at 3.75%.

Labour market demonstrates evidence of slowing down

Whilst the jobless rate edged down slightly to 4.9% in the three months to April, from 5% the previous quarter, the broader picture suggests firms are reducing spending. Liz McKeown, the ONS’s head of economic statistics, warned that the continued fall in job vacancies indicated “businesses are exercising greater caution about taking on new staff”. The figures show a employment market in transition, with conventional job routes narrowing even as overall joblessness stays relatively stable.

Perhaps most tellingly, wage growth rates in the private sector is now rising at its lowest rate in five-and-a-half years, indicating workers face diminished bargaining power. Against this background, the ONS observed “evidence of workers transitioning to self-employment”, indicating individuals are pursuing alternative sources of income as permanent employment opportunities contract. Economists propose this gradual relaxation of labour market pressures reduces the probability of inflation driven by wages, potentially giving policymakers greater flexibility in their monetary policy decisions.

• Unemployment rate dropped to 4.9% over the three-month period to April
• Professional service sector, retail, hospitality and leisure sectors most severely affected by falling job openings
• Private sector wage growth at lowest rate in five and a half years
• Workers increasingly moving into self-employed work as permanent roles become scarcer

Staffing shortage deepens throughout industries

The contraction in vacant roles has become notably evident, with job vacancies dropping to their lowest level in over two years. The March to May period saw just 707,000 vacancies across the British economy, marking a significant retreat from the higher figures seen during the post-pandemic hiring surge. This decline reflects a fundamental shift in hiring outlook, as businesses reconsider their recruitment strategies amid economic uncertainty and reduced consumer demand across multiple industries.

The scope of the fall in openings highlights the systemic nature of the contraction. Consulting sectors, which usually spearheads hiring cycles, has seen the steepest falls, whilst conventional segments such as retail and hospitality have also recorded marked reductions. Industry insiders link this restraint to a mix of international challenges and home market political risk, with businesses unwilling to pledge to lasting workforce increases until market conditions become more stable and visibility improves.

Professional sector hit hardest

Professional services has established itself as the sector most heavily affected by the hiring slowdown, experiencing the largest fall in vacancies across the reporting period. This sector, which encompasses consulting, legal services, accountancy and financial advisory roles, typically demonstrates resilience and solid hiring appetite. The sharp reversal signals that even leading service organisations are taking on a cautious approach, suggesting deeper apprehension about client demand and economic prospects among businesses that conventionally drive the hiring cycle.

The decline in business services job openings carries considerable importance for the broader employment landscape, as these positions typically offer elevated pay and attract qualified professionals. The pullback points to companies operating in this field anticipate weaker demand for their offerings in the coming months, causing them to limit hiring plans. This conservatism may create spillover effects, potentially dampening wage growth and job prospects for graduates and experienced professionals seeking roles in these traditionally buoyant industries.

Pay rises slows amid financial instability

Regular pay growth has continued relatively stagnant, growing at an annual rate of 3.4% in the quarter ending April, identical to the prior three months. Whilst this still exceeds inflation, indicating workers are preserving modest gains in purchasing power, the underlying trend masks concerning weakness in the private employment sector. According to the ONS, private sector wage growth is now growing at its slowest pace in five and a half years, a substantial decline that reflects employers’ reluctance to award significant wage rises as economic outlook deteriorates and recruitment slows across the labour market.

The restraint in salary increases is likely to offer some comfort to policy officials at the central bank as they assess interest rate choices. Economists argue that muted pay increases lowers the risk of secondary inflation impacts, where staff demand higher pay to account for previous price increases, consequently prolonging a inflationary spiral. Industry observers indicate that employees are becoming less inclined to push for increased wages against a sluggish economic environment, acknowledging the fragility of the labour market and prioritising employment security over forceful pay talks in the current climate.

What economic experts make of the statistics

Economists are mostly interpreting the labour market slowdown as a gradual moderation rather than a sharp deterioration, with most regarding the data as consistent with the Bank of England maintaining its present rate stance. Ben Caswell, chief economist at the National Institute of Economic and Social Research, characterised the figures as indicating a “gradual easing in the labour market” and noted they provide the Bank with rationale to hold rates steady at 3.75% this week. The blend of lower inflation figures and moderating labour market conditions appears to have shifted expectations away from further rate increases.

Industry experts note that the labour market is no longer fuelling inflation concerns, a notable shift from the earlier economic period. Yael Selfin, lead economist at KPMG UK, observed that wage growth in the private sector is slowing, reducing the likelihood of knock-on inflation effects passing through the wider economy. This easing of wage pressures, coupled with workers’ apparent reluctance to aggressively pursue pay rises amid economic instability, suggests the labour market is progressively responding to softer demand conditions without triggering a inflationary spiral that policymakers have consistently worried about.

• Employers wary to hire due to worldwide economic challenges and domestic political uncertainty
• Temporary hiring showing more resilience than permanent staffing placements
• Government intervention of Gulf crisis could initiate fresh wave of hiring activity

Implications for rate of interest decision

The employment data provides key perspective for the Bank of England’s monetary policy decision in the coming days. With job vacancies at their lowest level since the start of 2021, and new hires falling to a five-year minimum, policymakers have extra rationale for maintaining the current 3.75% rate. The cooling hiring momentum and easing wage growth suggest the economy is progressively adapting without demanding additional rate rises to combat inflation. Most analysts expect the Bank to maintain rates, viewing the data as indication that rate increases have accomplished their purpose.

The cooling labour market, coupled with recent price data that came out lower than expected, reduces pressure from the Bank to keep hiking rates. Economists maintain that sustained economic uncertainty—both globally and domestically—is already restraining recruitment plans without needing additional rate hikes. The data points to the pass-through of previous rate rises is flowing through the economy as intended, restraining demand and reducing wage pressures without causing significant job losses. This measured shift supports the case for the Bank to halt its cycle of rate increases and review the complete effect of measures already implemented.