Britain’s largest recruiters have warned the Bank of England that demand for permanent hiring among UK businesses has plunged at the second fastest rate since the pandemic, amid worsening headwinds for the UK economy.
Ahead of the central bank’s decision on interest rates on 14 December, the Recruitment and Employment Confederation (REC) trade body said lingering economic uncertainty and hesitancy to commit to new hires had weighed on activity in November.
A monthly snapshot of the UK jobs market produced by the REC and the accountancy firm KPMG, tracked closely by Treadneedle Street, showed availability of new job candidates increased at the fastest rate since December 2020.
But permanent staff appointments dropped at the second quickest rate since June 2020, when the first Covid-19 lockdown triggered an economic collapse.
The bank’s policymakers, including its governor, Andrew Bailey, are closely monitoring Britain’s jobs market for evidence of inflation persistence after pausing a round of 14 consecutive interest rate increases in September.
With the economy under growing pressure from higher borrowing costs, the bank is widely expected to keep interest rates unchanged at the current level of 5.25%.
Bailey has said that rates would need to remain high for a prolonged period to tackle stubbornly high inflation. However, the latest figures from the REC and KPMG showed few signs that the jobs market could add significantly to inflation in future.
According to the latest figures, starting salary inflation dipped to a 32-month low, while job vacancies declined for the second time in three months. It comes before official figures on the state of the jobs market due on Tuesday from the Office for National Statistics
Claire Warnes, skills and productivity partner at KPMG UK, said employers were reining in hiring and pushing ahead with redundancies in response to “sustained economic slowdown”.
She said: “Businesses want to plan for the year ahead, but the prospect of faltering UK economic growth means the certainty they need isn’t there. This is now impacting starting salaries, as pay inflation isn’t as sharp as in previous months. With the Bank of England looking like it will be keeping interest rates high for now, businesses will need to stay resilient to manage this period of flux.”
The survey from the REC and KPMG showed that employer confidence receded amid the current economic climate. This, in turn, led to hiring freezes and reductions in vacancies, with the sharpest declines in London.
Neil Carberry, chief executive of the REC, said that 2023 had been a “testing year” for recruiters, but that there was anecdotal evidence that employers might be holding back until the new year to resume their hiring plans.
However, he said wage growth could strengthen next year if employers found it harder to recruit following the government’s announcement of tougher migration rules this week. “For policymakers any return to growth will put strain on a labour market with embedded shortages – this week’s pro-election rather than pro-economy decision on immigration will exacerbate that.”