British businesses are slowing down hiring just as the number of people looking for work rises, according to data that suggested “lingering uncertainty” over the economic outlook.

The availability of candidates for new jobs rose in June at the sharpest rate since the height of the UK’s coronavirus restrictions in December 2020, according to the latest report on jobs by the Recruitment and Employment Confederation (REC) and KPMG.

The number of people placed in permanent jobs by recruitment agencies also fell, and wage growth dropped to its weakest rate in more than two years in June.

It comes before UK labour market data on Tuesday, which is forecast by economists to show unemployment remaining at 3.8%, still near four-decade lows. However, economists are watching keenly for signs of weakening growth.

The Bank of England has raised interest rates rapidly from 0.1% in late 2021 to 5%. Financial markets have priced in further rises in the coming months as the Bank attempts to drive down inflation, which has remained stubbornly high.

Claire Warnes, a partner at KPMG UK, said: “The sharp upturn in candidate availability this month – the highest for two and a half years – is a big concern for the economy, reflecting the effects of a sustained slowdown in recruitment along with increasing job losses across many sectors.

She said it appeared that employers were favouring temporary hiring over permanent jobs because of “lingering economic uncertainty”.”

Neil Carberry, chief executive of the REC, whose members were polled, said it was likely that more people were looking for new jobs in reaction to rising inflation, as well as a higher number of job losses. He said it was “no surprise, therefore, that the rate at which wages are rising has dropped again”.

Yet Carberry added that it was a mixed picture, given continued low unemployment.

“Despite these trends, the labour market remains very tight,” he said. “There are still broad skills shortages, with accountancy, construction, teaching and nursing among those sectors struggling to find and retain workers.

“The growth in vacancies for temps and permanent staff in hotels and catering and blue-collar jobs, and for temp positions in retail, suggest businesses anticipate that people are still prepared to spend their wages on goods and services despite the fall in their purchasing power and the wider cost of living crisis.”

The cost of living crisis has added to pressures on households’ spending power. Rest Less, a provider of jobs listings and advice to over-50s, said the hit to incomes may have increased the number of women planning to work beyond retirement age.

Its analysis of UK government statistics found that 44% of women aged between 50 and 65 planned to either stay in work on their existing hours or reduced hours.

Stuart Lewis, chief executive of Rest Less, said: “Nearly half of women aged 50-65 said they planned to continue working in some capacity after reaching state pension age – a number that is likely to have risen even further given the subsequent cost of living crisis.”

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Hiring by UK firms slows amid ‘lingering economic uncertainty’