UK jobs market wobbles after months of defying economic reality

Foulger said some of the actions to support borrowers "delay or mask" vulnerabilities rather than addressing underlying issues.
Foulger said some of the actions to support borrowers "delay or mask" vulnerabilities rather than addressing underlying issues.

The UK jobs market is looking increasingly fragile after months of defying economic gravity, a new survey out today reveals.

KPMG and the Recruitment and Employment Confederation’s (REC) permanent hiring index came in at 46.4 points last month, below the 50 point mark that separates growth and contraction.

Despite the index indicating businesses are cooling off from taking on staff, it did jump from 45 points in October, which experts said signalled unemployment may not rise as much as in previous economic downturns.

Neil Carberry, chief executive of the REC, said: “This month’s data emphasises that while employers are moderately more cautious in the face of economic uncertainty, this is not yet a major slowdown in hiring.”

Joblessness has pegged around historic lows for most of this year despite the UK economy softening sharply. The country is on course for an at least year long recession, driven by consumers cutting spending in reaction to inflation eroding their real incomes.

Jobs market has been softening recently

The UK jobs market has softened recently after months of defying economic gloom.
Source: KPMG and REC

Unemployment normally rises during recessions due to businesses reining in costs over fears their finances will be knocked by a reduction in demand.

However, demand for staff has run hot all year, with the ratio of vacancies to the number of unemployed people hitting record levels.

Open roles grew in November, with KPMG and REC’s vacancies index notching 54.1 points.

A shortage of workers in the UK driven by a rise in the number of people suffering from long-term illness after the pandemic has meant firms are reluctant to shed staff. 

A shallower workforce has put upward pressure on wages as companies rush to outbid rivals.

Permanent new hires’ starting salaries rose at the slowest pace in just over a year and a half, raising hopes the Bank of England will not need to keep hiking interest rates rapidly.

Rate setters are worried elevated inflation, already running at 41 year high at 11.1 per cent, will embed into the economy if workers demand huge pay rises and businesses hike prices.

According to Office for National Statistics figures, UK pay has lagged inflation for 11 months.

“A flatter period in the labour market is inevitable in this current economic climate, but demand is being supported by some major underlying factors, including labour shortages,” Carberry added.

Temporary staff hires grew last month driven by companies preparing for the busy Christmas trading period.