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

The count of people starting new jobs has fallen to its lowest point in five years, based on new data from the Office for National Statistics, as employers grow increasingly cautious about recruitment. New appointments totalled approximately 540,000 in April—the lowest monthly figure since March 2021—whilst job vacancies maintained their downward trend, 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 available positions. The data come as the Bank of England prepares to announce its interest rate decision on Thursday, with economists widely expecting the central bank to maintain its key rate at 3.75%.

Labour market demonstrates evidence of moderating

Whilst the unemployment rate declined slightly to 4.9% in the quarter ending in April, from 5% the previous quarter, the broader picture suggests businesses are cutting back. Liz McKeown, the ONS’s director of economic statistics, warned that the ongoing decline in job vacancies indicated “companies are taking a more cautious approach about taking on new staff”. The figures show a employment market in transition, with traditional employment pathways narrowing even as overall joblessness stays relatively stable.

Perhaps most tellingly, regular wage growth in the private economy are now increasing at its lowest rate in five-and-a-half years, suggesting workers face diminished bargaining power. Against this background, the ONS noted “some signs of workers transitioning to self-employment”, suggesting individuals are seeking alternative income sources as permanent employment opportunities contract. Economists propose this gradual easing of labour market pressures lowers the likelihood of wage-driven inflation, potentially giving policymakers greater flexibility in their monetary policy decisions.

• Unemployment rate declined to 4.9% over the three-month period to April
• Professional service sector, retail and hospitality sectors hit hardest by vacancy falls
• Private sector wage growth at the lowest point in five-and-a-half years
• Workers increasingly moving into self-employed work as permanent roles become scarcer

Staffing shortage worsens across sectors

The contraction in vacant roles has become notably evident, with job vacancies falling to their lowest point in over two years. The March to May period saw just 707,000 vacancies across the UK economy, marking a considerable downturn from the elevated levels seen during the period following the pandemic. This downturn reflects a marked shift in hiring outlook, as businesses reassess their hiring approaches amid uncertain economic conditions and softer consumer demand across numerous industries.

The breadth of the vacancy decline demonstrates the structural character of the slowdown. Professional services, which traditionally drives employment cycles, has seen the steepest falls, whilst conventional segments such as shops and hotels have also recorded significant downturns. Market observers attribute this conservatism to a combination of global pressures and domestic political uncertainty, with organisations hesitant to dedicate to lasting workforce increases until economic conditions stabilise and outlook clarifies.

Professional sector suffered most

Professional services has become the sector hardest affected by the hiring slowdown, experiencing the steepest drop in vacancies across the measurement period. This sector, which includes consulting, legal services, accountancy and financial advisory roles, typically shows resilience and strong hiring demand. The marked shift signals that even premium service firms are implementing a more defensive posture, suggesting deeper apprehension about customer demand and economic conditions among businesses that traditionally lead the hiring cycle.

The reduction in professional services vacancies holds considerable importance for the wider labour market, as these roles typically attract higher salaries and attract qualified professionals. The step back suggests employers in this sector anticipate weaker demand for their services in the coming months, leading them to limit hiring plans. This conservatism may create wider consequences, possibly reducing salary increases and job prospects for graduates and experienced professionals looking for positions in these traditionally buoyant industries.

Wage growth slows amid financial instability

Regular pay growth has stayed largely unchanged, growing at an annual rate of 3.4% in the quarter ending April, unchanged from the previous quarter. Whilst this remains ahead of inflation, suggesting workers are preserving modest purchasing power gains, the deeper pattern masks concerning weakness in the non-public sector. The ONS reports, private sector wage growth is now increasing at its weakest rate in five and a half years, a marked slowdown that reveals employers’ reluctance to award significant wage rises as economic outlook deteriorates and recruitment slows across the labour market.

The restraint in pay growth is expected to provide some comfort to decision-makers at the Bank of England as they assess borrowing cost decisions. Economists contend that subdued wage growth lowers the threat of second-round inflationary effects, where employees demand higher pay to offset previous price increases, thereby sustaining a pay-price cycle. Industry analysts note that employees are becoming increasingly reluctant to demand higher pay against a sluggish economic environment, recognising the weakness of the employment sector and preferring employment security over aggressive salary negotiations in the existing conditions.

What economists make of the data

Economists are predominantly interpreting the labour market slowdown as a gradual softening rather than a sharp downturn, with most assessing the data as consistent with the Bank of England keeping its current interest rate stance. Ben Caswell, chief economist at the National Institute of Economic and Social Research, characterised the figures as suggesting a “gradual easing in the labour market” and indicated they give the Bank with grounds to maintain rates at 3.75% this week. The mix of softer inflation data and moderating labour market dynamics appears to have shifted expectations away from further rate increases.

Industry experts highlight that the labour market is not currently fuelling price pressures, a meaningful shift from earlier in the economic cycle. Yael Selfin, chief economist at KPMG UK, observed that wage growth in the private sector is moderating, reducing the likelihood of secondary inflationary impacts feeding through the wider economy. This moderation in wage growth, alongside workers’ apparent resistance to actively chasing pay rises amid economic instability, suggests the labour market is slowly adapting to weaker demand without triggering a wage-price loop that policymakers have traditionally been concerned about.

• Employers reluctant to hire due to worldwide economic challenges and internal political uncertainty
• Temporary hiring displaying more resilience than permanent staffing placements
• Government settlement of Gulf crisis could initiate fresh wave of hiring activity

Implications for rate of interest determination

The labour market data provides essential insight for the Bank of England monetary policy decision this week. With job vacancies at their lowest level since early 2021, and new hires falling to a five-year minimum, policymakers have additional justification for maintaining the current 3.75% base rate. The slowing pace of recruitment and easing wage growth suggest the economy is slowly stabilising without needing more restrictive policy to combat inflation. Most analysts expect the Bank to maintain rates, seeing the data as confirmation that monetary tightening have achieved their intended effect.

The cooling labour market, coupled with recent inflation figures that came out lower than expected, removes pressure from the Bank to keep hiking rates. Economists maintain that sustained economic uncertainty—both worldwide and at home—is already restraining hiring intentions without needing additional rate increases. The data indicates the pass-through of earlier rate increases is flowing through the economy as intended, cooling demand and lowering wage growth without triggering substantial employment losses. This gradual adjustment backs the case for the Bank to pause its rate-hiking cycle and review the full impact of steps already taken.