Unemployment holds at 4.9% but economists warn of a "stuck" labour market, with private sector wage growth at its weakest since 2020.

Britain's jobs market showed fresh signs of strain this morning as official figures revealed vacancies have fallen to their lowest level in more than five years, even as pay growth in the private sector slowed to a near six-year low.

The Office for National Statistics said early estimates put vacancies at 707,000 in the three months to July, a drop of 6,000 on the previous quarter and, outside the pandemic years, the weakest reading since 2014. The number of workers on payrolls fell by 13,000 between May and June, while unemployment held steady at 4.9%.

Private sector regular wage growth eased to 2.8% in the three months to June, its lowest point since October 2020. The headline pay figure, at 3.5%, was propped up by a 6.1% rise across the public sector, driven largely by the timing of NHS pay awards.

ONS director of economic statistics Liz McKeown said vacancies remained "broadly flat", though the latest fall pushed them to their lowest level in more than five years. She said the decrease was driven mainly by smaller businesses citing labour and operating costs as reasons for holding off recruitment, and that while regular wage growth had stayed broadly stable, private sector pay growth continued to ease as public sector pay remained elevated because of NHS awards.

Economists were quick to point to the geopolitical backdrop. Julian Jessop, independent economist and IEA economics fellow, described the figures as "dire", noting the UK economy has continued shedding payroll jobs, with net losses over the past year and a sharp jump in the single-month figure for June. He said pay growth in the private sector had slowed to less than 3%, insufficient to keep pace with inflation for the rest of the year, while public sector pay running above 6% represented an "unsustainable" divergence.

Businesses, Mr Jessop argued, have been squeezed by higher employer National Insurance contributions, a higher minimum wage and an expanding regulatory burden, leaving ministers with little choice but to focus on cutting the cost of hiring rather than further taxation and regulation.

Not every reading of the data was bleak. Kevin Fitzgerald, UK managing director at Employment Hero, pointed to "green shoots" in his firm's own platform data, with modest employment growth in construction, healthcare and retail — and particularly encouraging signs in the North of England, where both employment and wage growth outpaced London in July. The willingness to hire was there, he said, but confidence was holding businesses back, and ahead of the Autumn Budget the Government needed to offer greater certainty if cautious optimism was to turn into stronger job creation.

Derrick Dunne, chief executive of YOU Asset Management, described a "stealth job market problem", with vacancies at their lowest since November 2014 outside the pandemic even as headline unemployment holds steady. He warned that workers were staying in jobs longer and struggling to secure pay rises through moving roles, with private sector wages rising at what he called a "paltry" 2.8% against a headline rate flattered by public sector growth. Real terms pay growth, based on the previous month's inflation figure, stood at a "lackadaisical" 0.7%, he said, meaning private sector workers were on average not receiving pay rises that beat inflation.

Alex Hall-Chen, principal policy adviser for employment at the Institute of Directors, called it a "stagnant" labour market and urged the Government to address what she described as the mounting costs and risks of employment stemming from the Employment Rights Act, the rise in employer National Insurance and successive above-inflation increases to the minimum wage. She said ministers had an opportunity, in their response to the consultation on zero-hours contract reform, to protect flexibility for employers and workers alike.

Households, meanwhile, are being urged to brace for a squeeze from another direction. Kevin Brown, savings expert at Scottish Friendly, said the ongoing conflict in the Middle East kept the possibility of one or two Bank of England interest rate rises on the table for 2026, warning that any disruption to global supply chains would land hardest on a public already worn down by a cost of living that has risen by around a quarter over the past five years. Whether or not the Bank moves next month, he said, households should be building a financial buffer and putting their money to work rather than leaving it idle.

Tomorrow's inflation figures will offer the next test of how far wages are really stretching — but for now, the message from this morning's data is unambiguous: employers are hiring less, paying cautiously, and waiting for a confidence that has yet to arrive.