Jobs shock: small firms stop hiring as unemployment hits 5%

Britain’s jobs market is cooling fast, and small firms saw it coming. New ONS figures show unemployment at 5%, vacancies down to 705,000, and pay growth slowing as employers pull back from hiring amid rising costs, weak confidence and global uncertainty. For small and micro businesses, this is not just a labour market statistic. It is a warning that customers are spending less, cashflow is tightening, and the post-pandemic hiring scramble is over.

Photo by Sasun Bughdaryan on Unsplash

The latest ONS labour‑market figures released today (19 May) show the UK jobs market continuing to soften, with unemployment ticking up again to 5%, and hardly unexpected despite the headlines. Anyone talking to small and micro businesses would have expected today’s figure to be higher. They aren’t hiring because of business costs and political and geopolitical uncertainty. Vacancies have fallen for the 15th consecutive month. The data paints a picture of an economy still growing but losing momentum.

Unemployment rises as hiring slows

Today’s figures show:

• Unemployment has risen compared with the previous quarter

• Employment levels have dipped, driven by fewer full‑time roles

• Vacancies have fallen again, continuing a long downward trend

• Economic inactivity remains high, especially due to long‑term sickness

The rise in unemployment is modest, but it confirms a pattern: the labour market is no longer the ultra‑tight environment seen in 2021–2023.

Wage growth remains strong but cooling

Regular pay growth is still historically high, but today’s release shows:

• Nominal pay growth easing

• Real pay still positive, but slowing as inflation stabilises

• Private‑sector pay growth softening faster than public‑sector pay

This suggests wage pressures are easing something the Bank of England will welcome.

Vacancies fall again: a sign of business caution

Vacancies have now fallen for more than a year, reflecting:

• weaker demand

• hiring freezes

• firms delaying expansion

• cost pressures still biting

But vacancy levels remain above pre‑pandemic norms, showing the market hasn’t collapsed. It’s normalising.

Long‑term sickness remains a major drag

Economic inactivity due to long‑term illness remains close to record highs. This continues to:

• reduce labour supply

• push up wage pressures

• limit growth

• increase pressure on public services

It remains one of the UK’s biggest structural challenges.

What’s driving the shift?

Economists point to:

• Higher interest rates cooling demand

• Slower economic growth

• Falling vacancies feeding through into unemployment

• Businesses holding back investment due to uncertainty

• Persistent inactivity reducing labour‑market flexibility

The overall picture: the labour market is still resilient but losing heat.

Small firms are feeling the shift more sharply than large employers.

1. Hiring is getting easier

More applicants, fewer counter‑offers, and lower wage pressure.

2. But demand is softening

Rising unemployment means weaker consumer spending especially for high‑street, hospitality and personal‑service businesses.

3. Wage bills stabilising

After two years of intense wage inflation, pay pressure is easing.

4. More candidates available but skills gaps remain

Long‑term sickness and inactivity still limit the pool of skilled workers.

5. Cashflow remains the biggest risk

With demand softening and costs still high, small firms remain exposed.

The takeaway

Today’s unemployment figures confirm a labour market that is cooling but not collapsing. The UK is moving out of the post‑pandemic hiring frenzy and into a more normal but weaker jobs environment.

For small and micro businesses, the shift brings some relief on hiring and wages, but also new risks from softer demand and continued economic uncertainty.