UK companies are holding back on hiring or are not replacing workers who leave, sending job vacancies tumbling, official figures suggest.
The number of available jobs fell by 63,000 between March and May while the unemployment rate ticked higher.
“There continues to be a weakening in the labour market,” said Liz McKeown, director of econonic statistics at the Office for National Statistics (ONS), adding that there had been a noticeable drop in the number of people on payrolls.
In April, National Insurance Contributions paid by employers increased while a rise in the minimum wage came into force.
The estimated number of available jobs fell to 736,000 over the three months to May.
“Feedback from our vacancies survey suggests some firms may be holding back from recruiting new workers or replacing people when they move on,” said Ms McKeown.
The figures also showed that the unemployement rate rose from 4.5% to 4.6% – the highest in almost four years and could rise higher, according to Yael Selfin, chief economist at KPMG UK.
“It is likely that businesses will look to offset some of the rise in employment costs through a combination of reducing headcount and slowing hiring activity,” she said.
“Given this, we expect the unemployment rate to edge higher over the coming year.”
The rise in average wages slowed to 5.2% between February and April, easing from a 5.6% increase.
However, it remains above the rate of inflation, which increased to 3.5% for the year to April.
Chancellor Rachel Reeves announced the rise in National Insurance contributions by employers in last October’s Budget. The hike is forecast to raise £25bn in revenues by the end of the parliament.
Employment minister Alison McGovern claimed that there were 500,000 more people in employment since Labour won the election last July. “People all over the country are benefiting from increased training opportunities,” she said.
But Conservative shadow business secretary Andrew Griffith said the rise in the unemployment rate was “disappointing but no surprise”, adding: “Businesses are still absorbing a £25bn jobs tax.”
Liberal Democrat Treasury spokesperson Daisy Cooper said: “The chancellor’s pig’s ear of a jobs tax is crushing the growth potential of our high streets and small businesses.”
She added: “These figures could not be a clearer signal to the chancellor, ahead of the Spending Review, that the government must change course.”
On Wednesday, Reeves will announce the Spending Review, which will allocate funding for everyday public services such as the NHS, education and policing as well as investment in infrastructure.
The NHS and defence are expected to be among the main beneficiaries in the review, leaving other departments with squeezed budgets.
While Capital Economics said the UK jobs market was “not collapsing”, its deputy chief UK economist Ruth Gregory said: “Most indicators show labour demand is clearly weakening.”
The number of people on payrolls fell by 55,000 between March and April and is forecast to drop a further 109,000 in May.
Although the ONS cautioned that this was an early estimate and could change when more data from HM Revenue & Customs becomes available.
The slowdown in average wage growth could pave the way for further interest rate cuts later this year.
Last week, Andrew Bailey, governor of the Bank of England, told MPs that evidence suggests that pay rates will continue to ease.
“That is going to be a crucial judgement going forwards,” he said, adding that the Bank would continue with a “gradual and careful” approach to reducing interest rates.
The Bank will hold its next rate-setting meeting on Thursday, 19 June though it is not expected to announce a reduction at that point.
