Job vacancies at five-year low as smaller firms scale back recruitment

The number of job vacancies has fallen to its lowest level in more than five years as smaller businesses cut back on recruitment, the latest official figures indicate.

Vacancy numbers dipped slightly over the May-to-July period to 707,000, according to the Office for National Statistics (ONS), which said small firms were citing labour and operating costs as reasons for scaling back hiring.

The ONS said the labour market was "little changed overall", with the unemployment rate remaining at 4.9%.

Growth in regular earnings - which excludes bonuses - picked up slightly, although private sector wages grew at their slowest rate for nearly six years.

Regular earnings grew at an overall annual pace of 3.5% in the three months to June, the ONS said. Pay growth for the public sector was 6.1%, due to the timing of the latest NHS pay awards, while in the private sector it dipped to 2.8%.

"The UK labour market remains stuck in a low-churn limbo, with employers reluctant to hire, fire or offer bigger pay rises as they grapple with rising costs, intensifying global headwinds and heightened policy uncertainty," said Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales.

"The persistent slide in vacancies is a red flag for the jobs market, suggesting labour demand is shrinking amid soaring employment and energy costs, while greater automation is also squeezing some entry-level roles."

Energy costs have increased since the outbreak of the Iran war, and companies have also complained that increases in National Insurance and the minimum wage have made it more expensive to employ staff.

Government analysis released last week said businesses could face costs of up to £2.9bn a year under a planned crackdown on zero hours contracts, which would cut the number of hours staff can work before they must be offered guaranteed time.

The British Chambers of Commerce (BCC) said business confidence was at a post-pandemic low, and measures such as the changes to zero hours contracts means many firms "will be reassessing their recruitment plans".

"Much more must now be done to bolster business confidence and unlock hiring by tackling cost pressures on firms," said Patrick Milnes from the BCC.

Analysts said there were few signs of pay growth generating inflationary pressures, which meant it was unlikely that the Bank of England would increase interest rates in its September meeting.

"With underlying wage pressures remaining contained, there is little reason for the Bank of England to shift course, and we expect rates to remain on hold for the remainder of the year," said Yael Selfin, chief economist at KPMG.

Figures released last week showed the UK's economy grew by 0.4% between April and June. The ONS described the performance as "relatively robust", although analysts expect growth to slow in the second half of the year.

It also emerged last week that internal forecasts presented to the new prime minister and chancellor suggested UK growth could be as low as 0.3% in 2027, if the Iran war continues to disrupt shipping flows through the Strait of Hormuz.