The recent increase in the minimum wage is exerting significant pressure on employers, leading to a sharp reduction in summer job hiring.

New figures indicate that employers are cutting back on seasonal hires amid broader concerns about labour shortages in crucial sectors of the economy.

Data from the Recruitment and Employment Confederation (REC) reveals a substantial decline in job postings for temporary summer positions in the hotel, restaurant, tourism, and construction sectors during April and May, compared to the same months last year. This trend follows the recent rise in the minimum wage.

Separate data from Make UK, a lobby group representing manufacturing companies, highlights ongoing skills shortages that are limiting expansion potential. The latest quarterly index from Make UK shows that recruitment intentions in the manufacturing sector have grown from 8% to 26%, reflecting a recovery in the industry. However, the struggle to hire skilled workers continues to be a significant challenge.

Labour shortages in certain parts of the economy are contributing to sustained wage growth, complicating efforts by the Bank of England to reduce interest rates. The Bank’s monetary policy committee is expected to maintain the base rate at 5.25% this week, citing concerns that rising earnings are hindering efforts to bring inflation down to the 2% target.

Overall job listings across the economy fell by 0.7% last month, totalling 1.7 million, while new job listings dropped by 1.1% between April and May, according to the REC. This indicates a cooling labour market.

Neil Carberry, CEO of the REC, explained that the need for employers to fill seasonal vacancies is being outweighed by the 9.8% increase in the minimum wage from April 1, raising it to £11.44 per hour. Companies are attempting to manage rising wage bills by reducing employee hours.

“A second big increase in the national minimum wage has affected hiring levels in key sectors,” Carberry said. “We can see some evidence of that drag in the lower summer seasonal hiring demand. Reducing hours or roles while opening for shorter periods are all decisions that firms may feel forced to make in tough times.”

The data shows job postings in the hotel and accommodation sector dropped by 45% in April and May compared to the same period in 2023. Similarly, restaurant and catering roles fell by 38%, and positions for chefs and cooks declined by 33%. Tourism and event roles also saw reductions across most regions.

The increase in the minimum wage has contributed to overall wage growth in the economy, reaching 6% in the three months to April, according to official figures released last week. The pace of earnings growth is a critical factor influencing monetary policy, with the Bank of England’s monetary policy committee indicating that signs of an earnings slowdown are necessary to justify significant rate cuts this year.

Despite the challenges, there are signs of recovery in some sectors, such as manufacturing, which experienced a near-two-year recession. Output in the manufacturing sector increased from a balance of 5% to 9% in the second quarter, with projections for a 30% rise in the three months to September, driven by falling inflation, energy prices, and interest rates, according to Make UK.