Headline figures from the Office for National Statistics’ (ONS) latest labour market release tell a story that, in some lights, could be seen as positive. Unemployment fell to 4.9%, down from 5.2% last quarter – the kind of number that, in the current economic climate, might reasonably be called encouraging.
But if you’re running a business and trying to navigate hiring, the outlook for job vacancies complicates that picture.
Job vacancies just hit a five-year low, according to the ONS. There are currently 711,000 openings across the UK – and with 2.5 unemployed people chasing every available role, competition for each position is at its most intense since 2021. What that ratio doesn’t show is that the candidate pool itself is contracting: 9.1 million people are now economically inactive, neither working nor looking for work, and the drop in the headline unemployment rate was driven partly by people leaving the labour market altogether, not by people finding jobs.
Payrolled employee numbers from the ONS confirm that the labour market is shrinking, not just shifting. They’re down 65,000 year-on-year, with every region and country in the UK except Northern Ireland seeing a fall – a sign that the contraction is being felt on both sides.
Why Every Hire Now Costs More Than You Think
The timing isn’t coincidental. April 2026 has been a significant month for UK employment costs. The National Living Wage reached £12.71 an hour this month, a 4.1% rise on the previous year, and the Employment Rights Act introduced a raft of obligations including: day-one sick pay, extended paternity leave, and greater exposure to employment claims. Employer National Insurance contributions also rose last year, causing employers to bring in more cost-cutting measures. When the Bank of England surveyed businesses after the change was brought in, for example, 44% confirmed they had cut staff as a result.
The cost of bringing someone new on – particularly on a part-time or casual basis – has clearly gone up significantly. For many small businesses, the response has been straightforward: hire fewer people, but make them permanent. Employment Hero’s March Jobs Report, tracking data from over 4,600 UK small businesses, shows exactly that pattern: full-time employment is up 14.6% year-on-year across the SME market – nearly three times the overall growth rate of 5.3% – while part-time and casual roles have been contracting.
The Pay Squeeze Hiding in the Headline
There’s one more number from Tuesday’s data that deserves more attention than it’s getting. Wage growth across the whole economy came in at 3.6% – a five-year low – but that average conceals a sharp divide. Public sector pay grew at 5.2%, boosted by recent deals for NHS staff and public servants, while private sector earnings grew at just 3.2% – exactly in line with current inflation. For most workers in private employment, that means real wages have gone nowhere.
For businesses competing for staff in sectors like finance, construction, skilled trades and healthcare, that makes retention as much of a challenge as hiring. Employment Hero’s March Jobs Report shows construction wages up 23.4% year-on-year and healthcare wages up 15.3% – both driven by employers fighting to hold on to existing staff rather than hiring for growth. The sectors paying the most right now aren’t the ones expanding fastest. They’re the ones shedding workers most slowly.
What It Means Practically
The employers who navigate this period well will be the ones who treat hiring as a process worth investing in, not a box to tick. With fewer roles available and more candidates in the market, a well-run process, a strong offer and fast decisions carry more weight than they did when the market was looser. And with real pay stagnant in the private sector, total reward – benefits, flexibility, development – does more of the heavy lifting on both attraction and retention than a pay rise alone.
