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

The count of people starting new jobs has fallen 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 reached just under 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 figures come as the Bank of England prepares to announce its rate decision on Thursday, with analysts broadly anticipating the central bank to keep its key rate at 3.75%.

Labour market shows signs 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 wider context suggests businesses are cutting back. Liz McKeown, the ONS’s head of economic statistics, warned that the continued fall in available positions indicated “companies are taking a more cautious approach about taking on new staff”. The figures show a labour market undergoing change, with conventional job routes contracting even as the overall unemployment rate stays relatively stable.

Perhaps most tellingly, wage growth rates in the private economy are now increasing at its slowest pace in five-and-a-half years, suggesting workers face diminished bargaining power. Against this backdrop, the ONS noted “some signs of workers transitioning to self-employment”, indicating individuals are seeking alternative sources of income as permanent job opportunities decline. Economists suggest this gradual easing of labour market pressures lowers the probability of wage-driven inflation, potentially providing policymakers greater flexibility in their monetary policy decisions.

• Unemployment rate dropped to 4.9% during the three months ending April
• Professional services, retail and hospitality sectors worst impacted by vacancy falls
• Private sector wage growth at lowest rate over the past five and a half years
• Workers moving in greater numbers into self-employed work as permanent roles become scarcer

Staffing shortage worsens across sectors

The contraction in vacant roles has become more marked, with job vacancies dropping to their lowest point 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 downturn reflects a marked shift in hiring outlook, as businesses reassess their recruitment strategies amid economic challenges and softer consumer demand across multiple industries.

The breadth of the vacancy decline demonstrates the fundamental scale of the contraction. Consulting sectors, which usually spearheads employment cycles, has seen the most pronounced drops, whilst conventional segments such as retail, hospitality and leisure have also witnessed marked reductions. Sector analysts ascribe this restraint to a mix of global pressures and domestic political uncertainty, with businesses hesitant to dedicate to sustained staffing growth until the economy stabilises and clarity emerges.

Professional sector hit hardest

Professional services has established itself as the sector most heavily affected by the recruitment pullback, experiencing the biggest decline in vacancies across the review period. This sector, which includes consulting, legal services, accountancy and financial advisory roles, typically exhibits resilience and solid hiring appetite. The sharp reversal signals that even premium service firms are implementing a more defensive posture, suggesting deeper apprehension about client demand and economic prospects among businesses that traditionally lead the hiring cycle.

The reduction in business services vacancies carries particular significance for the broader employment landscape, as these roles typically offer higher salaries and attract qualified professionals. The pullback suggests employers in this sector anticipate softer demand for their services in the months ahead, prompting them to freeze or reduce hiring plans. This restraint may have knock-on effects, likely suppressing wage growth and employment prospects for graduates and experienced professionals seeking roles in these historically strong sectors.

Salary increases moderates amid financial instability

Regular pay growth has remained broadly flat, expanding at an yearly pace of 3.4% in the three months to April, identical to the prior three months. Whilst this still exceeds inflation, indicating workers are sustaining modest gains in purchasing power, the underlying trend masks troubling weakness in the non-public sector. The ONS reports, private sector wage growth is now growing at its slowest pace in five-and-a-half years, a substantial decline that reflects employers’ resistance to giving meaningful pay rises as economic conditions soften and job creation slows across the labour market.

The moderation in salary increases is expected to provide some reassurance to decision-makers at the central bank as they evaluate borrowing cost decisions. Economists argue that muted pay increases diminishes the risk of downstream inflationary pressures, where workers request higher pay to account for earlier cost rises, thereby prolonging a wage-price spiral. Industry analysts suggest that employees are growing more hesitant to push for better salaries against a subdued economic conditions, understanding the fragility of the labour market and preferring workplace security over aggressive salary negotiations in the current climate.

What economists make of the data

Economists are predominantly interpreting the slowdown in the labour market as a gradual easing rather than a sharp deterioration, with most assessing the data as consistent with the Bank of England keeping its existing interest rate position. Ben Caswell, senior economist at the National Institute of Economic and Social Research, characterised the figures as pointing to a “gradual easing in the labour market” and indicated they offer the Bank with rationale to keep rates unchanged at 3.75% this week. The blend of lower inflation figures and moderating labour market dynamics appears to have altered expectations away from additional rate rises.

Industry analysts highlight that the labour market is not currently fuelling price pressures, a significant shift from earlier in the economic cycle. Yael Selfin, chief economist at KPMG UK, stated that wage growth in the private sector is slowing, reducing the likelihood of knock-on inflation effects feeding through the wider economy. This moderation in wage growth, combined with workers’ apparent reluctance to aggressively pursue pay rises amid economic instability, suggests the labour market is progressively responding to reduced demand without triggering a inflationary spiral that policymakers have traditionally been concerned about.

• Employers cautious to hire due to worldwide economic challenges and internal political uncertainty
• Temporary hiring showing more resilience than permanent staffing placements
• Government resolution of Gulf crisis could trigger new phase of hiring activity

Implications for interest rate decision

The labour market data delivers key perspective for the Bank of England monetary policy decision in the coming days. With job vacancies at record lows since the start of 2021, and new hires falling to a five-year low, policymakers have additional justification for holding the current 3.75% rate. The cooling hiring momentum and moderating pay pressures suggest the economy is gradually adjusting without demanding more restrictive policy to combat inflation. Most analysts believe the Bank to keep rates unchanged, viewing the data as evidence that rate increases have delivered their desired outcome.

The softening labour market, coupled with recent price data that came in lower than expected, eases pressure from the Bank to maintain increases in rates. Economists maintain that sustained economic instability—both worldwide and at home—is already restraining recruitment plans without needing additional rate increases. The data suggests the transmission of earlier rate increases is flowing through the economy as intended, restraining demand and reducing wage pressures without causing significant job losses. This gradual adjustment supports the case for the Bank to halt its cycle of rate increases and evaluate the complete effect of measures already implemented.