UK jobs market tension shows little sign of unwinding

Tension in the UK jobs market shows little sign of unwinding as employers continue to struggle to find workers amid a shallower labour pool, reveals a closely watched survey today.

Vacancies edged lower in May, indicates 71 reading on KPMG and the Recruitment and Employment Confederation’s (REC) employment index.

Despite falling, the reading is far above the 50 threshold that separates growth and contraction.

Strong demand for staff is rubbing up against a lower supply of workers, with the organisations’ candidate index also showing a drop in available staff.

Businesses are scrambling to ramp up pay and other perks to muscle out competitors in the race to lure and attract talent.

Starting salaries accelerated at a near record pace last month, KPMG and the REC found.

The fresh survey illustrates workers have accrued a high level of bargaining power which they can deploy to secure wage bumps if they are willing to move roles.

Neil Carberry, chief executive of the Recruitment and Employment Confederation (REC), said: “These numbers show a hugely positive jobs market if you are looking for work.” 

“While the pace of growth has dropped after a stellar first quarter, by any normal measure there are still lots of vacancies out there, offering improved wages,” he added.

Strong upward wage pressures will concern the Bank of England, which has warned pay rises that are not accompanied by productivity gains may embed high inflation over the long run.

Higher wage bills strengthen incentives for businesses to raise prices, in turn prompting workers to demand further pay increases, leading to a self-fulfilling inflation cycle known as a wage/price spiral.

Markets expect the Bank to lift rates for the fifth meeting in a row next Thursday, likely taking them to 1.25 per cent.

Despite the strong labour market, inflation is still eroding workers’ living standards rapidly. 

Latest official data from the Office for National Statistics revealed real regular pay, which strips out bonuses and accounts for price rises, dipped 1.2 per cent, the fastest erosion since 2013.

Living costs have climbed nine per cent over the last year, the quickest increase in four decades.

Firms are trying to hire workers to capitalise on high demand, but are being hobbled by worker shortages. Hiring activity cooled in May, driven by a lack of available candidates, KPMG and the REC said.