The dwindling pace of wage growth coupled with declining demand for staff has intensified pressure on the Bank of England to consider cutting interest rates in an effort to rejuvenate a faltering job market.
According to the monthly report on jobs by the Recruitment and Employment Confederation (REC) and KPMG, the rate of growth in starting salaries has plummeted to its slowest pace in nearly three years. In February, the index reading fell to 55.2 from 55.8 the previous month. Although still indicating growth, this decline suggests a deceleration in starting pay. Additionally, temporary starting salary growth experienced a drop to 54.3 from 54.8.
The sustained decrease in pay growth signals a reduced risk of prolonged inflation due to an overheated labour market. The Bank of England has reiterated its stance that a containment in salary increases is necessary before contemplating a reduction in interest rates from the current level of 5.25 per cent, a 16-year high.
The REC and KPMG’s survey revealed a significant deterioration in businesses’ demand for workers over the past month, driven by concerns about the health of the UK economy. The total vacancy index, measuring demand for both permanent and temporary staff, fell below the 50-point threshold to 46.9 from 49.4.
Permanent hiring witnessed a substantial contraction, with the index reading declining to 43.6, while the temporary hiring index fell to 46.
Neil Carberry, chief executive of the REC, commented on the findings, stating, “This month’s survey depicts a slowing market and a concerning decline in temporary billings, marking the lowest performance since the middle of 2020.”
He further added, “Given recent GDP news, this overall picture is not unexpected – though it remains relatively resilient compared to previous recessions.”
While the UK experienced a recession in the latter half of last year, recent data indicates a recovery in business activity and consumer spending in the early months of this year, raising optimism about the country’s economic outlook.
Despite the economic downturn, unemployment has remained historically low at 3.8 per cent, attributed to businesses retaining workers to avoid protracted and costly recruitment processes.
However, the Office for Budget Responsibility cautioned last week that the labour force participation is expected to permanently decrease in the coming years. While fiscal measures, such as the recent reduction in national insurance rates, aim to incentivize individuals to return to the workforce, the impact may be limited, with only around one-third of those who left the labour market due to the pandemic expected to return.
In light of these developments, Carberry emphasized the importance of the Bank’s role, stating, “Following the recent budget, which failed to address key growth drivers such as skills, infrastructure, and reducing the cost of investment and employment, attention is now on the Bank. Lower interest rates will bolster firms’ confidence to invest.”