Labour market continues to ease but pay growth accelerates, survey shows
The Bank of England has continued to receive divergent signals from the labour market, which has complicated the outlook for rate cuts.
The latest survey from KPMG and the Recruitment and Employment Confederation (REC) showed that starting salary inflation for permanent roles increased at its fastest rate for eight months in June.
The survey suggested that firms were willing to bolster starting pay to attract the best candidates. Temporary pay rates also rose further, albeit slower than in May.
Yet the survey also showed a further decline in demand for workers, partly due to the election.
Permanent staff appointments continued to fall in June, and the rate of contraction accelerated to its steepest level in three months.
Staff availability also continued to increase for the 16th consecutive month. Both permanent and temporary staff availability rose sharply due to redundancies and fewer vacancies.
“The latest survey results indicate that employers are still hitting the brakes on recruitment with the general election period causing some uncertainty,” Jon Holt, Chief Executive and Senior Partner of KPMG in the UK, said.
“This lack of demand means competition for the few roles available continues to drive pay growth,” Holt added.
The KMPG-REC survey seemed to confirm the pattern revealed in official statistics.
Official statistics showed the unemployment rate increased to 4.4 per cent in May, its highest level since September 2021.
Pay growth meanwhile has remained around six per cent, about twice the levels policymakers think is consistent with inflation returning to two per cent sustainably.
The persistence of pay growth in recent months partly reflected April’s near 10 per cent increase in the minimum wage. It also showed the difficulties firms have faced in finding appropriate candidates.
Still, there are signs that these pressures have begun to ease. A Bank survey out last week showed expected wage growth over the year ahead fell to 4.0 per cent, down from 4.1 per cent in May.
Sanjay Raja, chief UK economist at Deutsche Bank, expected wage growth to ease given the signs of an easing labour market. “Increasing confidence around a cooling labour market…should give the MPC some assurance that wage growth will naturally slow in the coming quarter,” he wrote in a note last week.
“This should, in our view, allow Bank Rate to be dialled down gradually from current restrictive levels as early as August,” he added.