Bank of England should ‘loosen its grip on growth’ as labour market slack grows
Slack continued to grow in the labour market in March, a closely watched survey suggested, as experts called on the Bank of England to “loosen its grip on growth”.
Starting salary inflation for permanent roles increased at its weakest rate in over three years, according to KPMG and the Recruitment and Employment Confederation’s (REC) report on jobs.
For temporary roles, the increase in starting pay was the slowest in four months, putting it below the long-term trend.
The easing in wage pressures reflected both a growing supply of candidates and falling demand from firms.
The survey showed a “rapid and accelerated increase” in the availability of staff reflecting attempts by firms to cut costs. This was the thirteenth successive month in which growth in labour supply was recorded.
Demand for staff also continued falling, with the vacancies index posting 47.2. This put it comfortably below the 50 no-change mark and only slightly higher than February’s 37-month low of 46.9.
Neil Carberry, chief executive of the REC, argued that the figures showed it was time for the Bank of England to start cutting interest rates.
“The data here should support a decision by the Bank of England’s Monetary Policy Committee to loosen its grip on growth in the near-term future,” he said.
“Economic growth has been sidelined for too long and must be at the heart of this year’s General Election campaign,” Carberry continued.
The Bank of England has been reluctant to cut interest rates given the continued tightness of the labour market in the face of aggressive monetary tightening.
Unemployment has barely budged despite the rapid increase in interest rates, official figures suggest. Although pay growth is on a steadily downward path, it is still running at around six per cent – more than twice the level the Bank thinks is consistent with inflation returning to target.
In a recent speech, Andrew Bailey, governor of the Bank, noted that “the pattern of disinflation with full employment is unusual in our modern history”.
Markets expect the Bank to start cutting interest rates this summer, with June the earliest likely start date.
“It’s time for the UK economy to get its groove back,” Jon Holt chief executive and senior partner of KPMG UK said. “UK businesses will be ready when the Bank of England makes its interest rate cuts,” he added.