Starting salary inflation eased to its slowest rate in nearly three years, a closely watched survey showed, in the latest indication that slack is building in the jobs market.
The latest jobs report from KPMG and Recruitment and Employment Confederation (REC) revealed that tighter client budgets and an increase in candidate numbers were helping to stabilise starting pay, even though competition remains intense for highly-skilled workers.
This brought starting salary inflation to its lowest level in 33 months.
The news will fuel hopes that wage growth is on a sustained downturn trend, paving the way for the Bank of England to start cutting interest rates later this year.
Developments in the labour market are crucial for assessing whether inflation is under control, enabling the Bank to ease the cost of borrowing.
So far, however, the labour market has been remarkably resilient to the Bank’s interest rate hikes, designed to get the country back to the 2 per cent inflation target.
According to official figures, unemployment stands at just 3.8 per cent, having fallen from its post-pandemic peak of 4.3 per cent over the summer.
Policymakers are concerned that the strength of the labour market could support higher rates of inflation. Chief financial officers surveyed by the Bank expect wages to grow 5.2 per cent over the coming year.
However, KPMG’s survey suggested that the labour market is starting to feel the pinch. The survey showed that there had been an “accelerated reduction” in demand for workers, with demand falling at the fastest pace since the start of 2021.
Supply meanwhile expanded for the twelfth straight month, although at a slower rate than the previous four months. Increases in candidate availability was driven by “marked upturns” in both permanent and temporary roles.
Neil Carberry, chief executive of the REC, said: “This month’s survey shows the market slowing…Given recent news about GDP dropping, this overall picture is no surprise – but it is certainly still quite resilient by comparison with previous recessions”.
Investors will get further information on the state of the labour market when the Office for National Statistics (ONS) publishes its latest survey on Tuesday.
Economists expect total annual wage growth to fall back to around 5.6 per cent, down from a previous reading of 5.8 per cent, whilst inflation falls towards 2 per cent.
Ashley Webb, UK economist at Capital Economics, noted that there’s “unlikely to be much evidence in this release of a further easing in wage growth”.