UK labour market weakens as vacancies fall to five-year low

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UK labour market weakens

Highlights

UK job vacancies fell to 705,000 in the three months to April, down 3.9 per cent quarter-on-quarter and the lowest since the 2021 Covid-19 lockdown.
Payroll employment declined by 28,000 from February to March and provisional April data shows a further 100,000 drop, leaving it 0.7 per cent below last year.
Wage growth excluding bonuses slowed to 3.4 per cent, private sector pay eased to 3 per cent, and the pound dropped 0.2 per cent to $1.341 after the data.

ONS data points to softer hiring and job losses

According to the Financial Times, as reported by the Office for National Statistics, the number of job openings falls to 705,000 in the three months to April, down 3.9 per cent from the previous quarter and the lowest level since the 2021 Covid-19 lockdown period.

Employers also cut roles, with payroll employment falling by 28,000 between February and March. Provisional tax-record data for April shows a steeper month-on-month decline of 100,000, leaving payroll employment down 0.7 per cent from a year earlier.

The ONS says April data is especially uncertain early in the tax year and is likely to be revised upwards. Liz McKeown, director of economic statistics at the ONS, says the figures show the labour market remains soft, with unemployment estimated at 5 per cent in the three months to March, higher than a year earlier.

Bank of England outlook and market reaction

Economists say the weaker jobs picture could reduce pressure on the Bank of England to raise interest rates in response to the inflation shock caused by the war, which has pushed energy prices sharply higher. The Monetary Policy Committee last month leaves rates unchanged at 3.75 per cent and signals it is ready to act if price pressures persist, with its next meeting due in June.

Paul Dales of Capital Economics says the April weakening in the labour market may help restrain gilt yields by showing businesses are cutting headcount rather than lifting pay to offset higher inflation. Rob Wood of Pantheon Macroeconomics says the latest labour market snapshot removes the remaining chance of a rate increase at the June policy meeting.

Wage figures present a mixed picture for policymakers. Excluding bonuses, annual average weekly pay growth slows to 3.4 per cent in the three months to March from 3.6 per cent in the previous period, while private sector wage growth eases to 3 per cent, a pace rate setters view as consistent with the 2 per cent inflation target. Including bonuses, total wage growth rises to 4.1 per cent from 3.9 per cent. The pound is down 0.2 per cent against the U.S. dollar at $1.341 after the data.

UK regular wage growth (excluding bonuses) held at 3.4% year-on-year in Q1 2026, in line with expectations, underscoring why pay trends remain a key input for Bank of England policy decisions. Our earlier coverage noted that policymakers were watching whether softer hiring would keep wages cooling even as higher energy prices added fresh inflation risks.

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