Pay for new hires rose at the slowest pace in over four years, fresh data has indicated, in signs redundancies and higher taxes are depressing wage growth.
The lack of demand among recruiters and the larger number of job seekers in the UK economy has led to starting salary inflation slowing down to its lowest level since March 2021, according to research by KPMG and the Recruitment and Employment Confederation.
Analysis of S&P Global purchasing managers’ index (PMI) data showed that temporary pay inflation had also eased along with wages in worrying signs for the UK economy.
The drop in vacancy levels was also sharper in July, reflecting subdued demand for staff despite the increase in job seekers over the month.
The permanent placements index for July was 40, below the 50-figure benchmark for neutrality in employment growth.
London and the South of England saw the steepest reduction in permanent placements of any region in the UK.
REC researchers suggested the jobs market could see a turnaround but speculation ahead of this year’s Autumn Budget risked forcing bosses to delay investments and fear for the worst.
Kate Shoesmith, REC’s deputy chief executive, said further interest rate cuts were needed to boost jobs across the UK economy, helping businesses to stabilise their cost bases.
“There is a path to jobs market recovery, but it will take co-ordinated action from the government, the Bank of England and business to maximise on any potential upswing,” Shoesmith said.
“Widespread skills shortages remain, which indicates the need for urgent support from the government to upskill and retrain people.
“Businesses need to act now to secure the talent they will require when hiring picks up later this year, as our separate employer sentiment surveys suggest it will.”
Pay rise to be influenced by interest rates
Engineering saw a lift in permanent placements last month while retail and hospitality suffered further drops, with firms more nervous about red tape in the Employment Rights Bill and difficulties in managing the costs of higher employers’ national insurance contributions (NICs).
Bank of England researchers said last Thursday that a wedge had been created between expected pay costs and expected total labour costs in recent months when they had broadly moved in lockstep with one another in previous years.
An interest rate cut suggested Bank officials were worried about the slump in demand. But the hawkishness of the Monetary Policy Committee (MPC), given four members opted for rates to be held, signalled that the Bank was fighting on another front against an uptick in inflation.
Separate research of surveys conducted by the accountancy firm BDO had its employment index at its lowest level in 13 years “with limited room for recovery”.
Scott Knight, head of growth at BDO, said: “There are signs of recovery, but they are fragile.
“Business leaders are stuck in limbo, waiting for clearer signals from the government that further investment will be worth the gamble.”