Job vacancies have fallen below 700,000 for the first time in over five years, official data has shown, as the UK labour market continued to show signs of weakening.
The Office for National Statistics (ONS) said vacancy levels decreased in the three months to September by 21,000. It means the number of job vacancies stood at around 691,000, the lowest level since April 2021.
Data also showed that the the unemployment rate dropped slightly to 4.7 per cent and wage growth continued to slow.
Annual growth in employees’ earnings was 3.7 per cent, excluding bonuses, which was higher than economists’ expectations of 3.6 per cent.
Including bonuses, statisticians said annualised pay growth was also 3.7 per cent between June and August, which was below expectations. This was lower than for the three-month period between May and July.
“The number of vacancies has seen its largest fall since the start of the year, concentrated mainly within smaller businesses, which cite increased labour costs as a key factor,” David Freeman, deputy director of labour market statistics at the ONS said.
Martin Beck, chief economist at WPI Strategy, said the drop in vacancies was “more worrying”.
“The UK faces a prolonged jobs squeeze rather than an employment crisis. The labour market isn’t falling off a cliff, but it looks set to remain stuck in the slow lane.”
Economists have widely said that a weaker jobs market could prevent the Bank of England from hiking interest rates in order to deal with the impact of higher prices.
The central bank’s projections state that inflation could rise above four per cent in the early parts of 2027. On Wednesday, it is predicted that CPI inflation will hit 3.4 per cent, rising further above the Bank’s target two per cent rate.
Wage outlook impacts interest rates views
Several policymakers on the Bank’s Monetary Policy Committee have warned that a continued rise in energy prices could prompt the Bank to lift interest rates from 3.75 to four per cent in November.
Officials have so far left interest rates unchanged, and are instead on high alert for signs of so-called “second round effects”. The phenomenon, where the price pressure from an initial shock becomes embedded in an economy via wage and price setting, has so far failed to materialise. High levels of joblessness and low numbers of vacancies mean workers have less bargaining power to ask for higher wages.
Huw Pill, who has the most hawkish track record among members of the Monetary Policy Committee, said that despite the absence of second-round effects to date, the spectre of a 20 per cent jump in energy bills next year meant the Bank should have voted for an interest rate hike at the start of the war to prove it was “active”.
“It would have been good to move early and influence market expectations, and send a clearer signal we were active and agile,” the Bank’s chief economist said. “I don’t think we have been in a good place.”
However, he told an International Monetary Fund meeting in Bangkok he was “sceptical” about the need for four interest rate hikes even as the Iran war threatens to carry inflation higher.
Megan Greene, an external member of the monetary policy committee (MPC), said resilient growth this year shows that relatively high interest rates had not dampened activity in the UK economy.
Suren Thiru, ICAEW chief economist, said: “While weak wage growth should reassure rate-setters that the Iran-driven energy shock is not yet fuelling a broader inflation spiral, it also means the cost-of-living squeeze persists, increasing pressure on the Chancellor to act in next week’s Budget.”