Retail and hospitality businesses cut back on hiring as UK job vacancies fell to their lowest level in five years, according to the latest official figures.
The Office for National Statistics said vacancies dropped to 707,000 in the March to May period, the lowest level since February to April 2021.
While the labour market remained “broadly stable”, the ONS said some areas were showing signs of weakening as employers became more cautious about taking on staff.
Retail and hospitality were among the sectors to record significant falls in vacancies, alongside professional services, which saw the largest decline.
The figures come as retailers continue to face higher employment costs following increases to the National Living Wage and employer National Insurance contributions.
ONS director of economic statistics Liz McKeown said the latest drop in vacancies suggested “firms are becoming more cautious about taking on new staff”.
HMRC data also showed new hiring had slowed sharply, with the number of new recruits falling to just under 540,000 in April, the lowest monthly figure since March 2021.
McKeown added that there were “some signs of workers moving into self employment” as vacancies continued to decline.
The unemployment rate edged down to 4.9 per cent in the three months to April, from 5 per cent in the three months to March.
Regular pay, which excludes bonuses, grew by 3.4 per cent in the three months to April, unchanged from the previous three-month period. This means average earnings are still rising slightly faster than prices.
However, private sector wage growth was at its lowest rate in five and a half years, suggesting labour cost pressure may be starting to ease.
The figures underline the pressure facing consumer-facing sectors, where businesses are balancing higher wage bills with weaker consumer confidence and fragile demand.
Hospitality operators warned that rising employment costs were making it harder to hire inexperienced workers and offer young people a first step into employment.
Jamie Younger, who recently opened The Victory pub in south London, said increases to the minimum wage and National Insurance had “made life very difficult”.
He said many pubs and restaurants were now focusing on experienced hires rather than training younger workers.
“There is a benefit of employing someone in their first job because you get to train them and mould that person,” he said. “But with the financial restrictions it’s becoming harder and harder every day.”
Recruitment and Employment Confederation director of campaigns Shazia Ejaz said employers were hesitant to commit to permanent hiring amid global pressures and domestic political uncertainty.
However, she said temporary hiring was performing better than permanent recruitment.
The labour market figures were published ahead of the Bank of England’s decision to hold interest rates at 3.75 per cent.
Governor Andrew Bailey said it was “encouraging” that oil prices had fallen following a peace deal between the US and Iran, although he warned there was still “inflationary pressure in the pipeline”.
KPMG UK chief economist Yael Selfin said slowing wage growth suggested the labour market was not a major driver of inflation.
“Against a weak economic backdrop, workers are increasingly reluctant to push for higher pay, reducing the likelihood of second-round effects feeding through from the labour market into wider cost pressures,” she said.
“We expect pay growth to continue to slow over the coming months.”
The ONS has faced criticism over the quality of some of its labour market data, with its Labour Force Survey affected by low response rates.
However, the latest figures add to evidence that businesses across retail, hospitality and other consumer-facing sectors are becoming more cautious on hiring as costs remain elevated.
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