Employers still bumping pay despite labour squeeze cooling

Employers in London and across the UK are still having to offer attractive pay packets to lure workers despite the labour squeeze easing, reveal fresh figures released today.

The rate of decrease in the pool of available candidates slowed at the tail end of last year, boosting labour supply, according to research carried out by the Recruitment and Employment Confederation (REC) and consultancy KPMG.

However, starting pay for workers accelerated rapidly in December, continuing a trend exhibited since the UK emerged from the most onerous Covid-19 restrictions last spring.

A combination of the pandemic igniting a mass shift in career goals among Brits, alongside younger workers staying in education and older workers taking early retirement has engineered a shallower labour pool in the UK.

A lack of workers has led to sectors of the economy snarling up and normal services being halted.

Worker scarcity is “testing the resolve” of businesses and is likely to distort recruitment activity over the coming months, Claire Warnes, head of education, skills and productivity at KPMG UK, said.

Although the reduction in worker supply in London eased to its softest rate since last May, the capital’s businesses are still having to raise starting pay to boost staffing levels.

There was “a marked increase in starting salaries awarded to permanent workers in London, thereby extending the run of rapid pay inflation recorded since last summer,” the report said.

Recruiters blamed strong competition among the capital’s businesses to secure workers as the main source of wage inflation.

An ongoing labour squeeze will agitate the Bank of England as it indicates inflation in the UK economy could stay elevated.

A higher wage bill tends to incentivise businesses to raise prices to protect margins, putting upward pressure on the cost of living.

Inflation is already running at its highest rate in over a decade, hitting 5.1 per cent in November, more than double the Bank’s two per cent target.

Some analysts expect inflation to reach as high as seven per cent this spring, driven by the energy regulator, Ofgem, hiking the cap on energy bills around 50 per cent.Neil Carberry, Chief Executive of the REC, said: “2022 will be the year we discover staff shortages will outlive the pandemic as an economic issue.”