Report on Jobs: Starting salary inflation softens to 34-month low in January

• Starting salary growth eases amid further rise in staff supply
• Sustained and sharp drop in permanent placements...
• ...while temp billings fall slightly

Summary

The latest KPMG and REC, UK Report on Jobs survey, compiled by S&P Global, highlighted that ongoing uncertainty around the economic outlook continued to impact hiring decisions at the start of the year. Permanent placements fell at a sharp and accelerated pace, while the downturn in temp billings remained mild. Overall vacancies meanwhile declined slightly for the fourth time in five months.

Lower levels of recruitment activity and redundancies fuelled further increases in staff availability. Though sharp, upturns in both permanent and temporary candidate numbers cooled from December, however. Competition for staff with desirable skills and the rising cost of living underpinned further increases in starting pay, albeit with rates of salary and wage inflation both posting below their long-run trends.  

The report is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 UK recruitment and employment consultancies.

Uncertainty over the outlook continues to constrain hiring

The latest survey of recruitment agencies across the UK revealed a further drop in hiring activity at the start of 2024, particularly for permanent workers. Notably, permanent staff appointments fell at a sharp and accelerated pace, while temp billings fell only slightly. There were frequent reports that businesses had often paused recruitment plans due to the subdued economic environment, while fewer vacancies also dampened staff placements.

Overall demand for workers falls for third month running

Total vacancies across the UK declined again during January, albeit marginally. Demand for staff has now weakened in four of the past five months, driven by a sustained reduction in permanent job opportunities. Meanwhile, temp vacancies expanded at the slowest rate since November 2020 and only slightly.

Permanent salary inflation slips to 34-month low...

Although starting salary inflation remained sharp in January, the latest increase in pay was the softest recorded since March 2021 and slower than the series average. Temp wage growth quickened slightly to a five-month high, but was also below the historical trend. According to recruiters, competition for suitably-skilled staff amid a strong inflationary environment continued to push pay rates higher. However, there were also reports that pressure on client budgets had limited overall increases in pay.

...as supply of candidates continues to increase

UK recruiters registered a further sharp increase in overall candidate availability at the start of the year. This was despite the rate of growth easing to a four-month low. Permanent staff supply continued to rise at a slightly quicker pace than that seen for short-term workers, but both saw upturns ease since December. There were frequent reports that redundancies and a slowdown in recruitment activity had increased the pool of available workers.

Regional and Sector Variations

The latest reduction in permanent staff appointments was broad-based across the four English regions monitored by the survey. The steepest rate of contraction was seen in the Midlands, though marked falls were also recorded elsewhere.

Higher temp billings in the North and South of England contrasted with declines in the Midlands and London.

Permanent staff demand fell across just over half of the ten monitored job categories during January. The steepest rates of contraction were seen in the Retail, Construction and IT & Computing sectors. Meanwhile, the strongest rise in vacancies was signalled for Nursing/Medical/Care roles.

Of the five broad employment sectors to see firmer demand for short-term workers, Hotel & Catering and Blue Collar saw the steepest rates of vacancy growth overall. At the same time, the quickest drop in temp job opportunities was seen in the Retail sector.

Comments

Neil Carberry, REC Chief Executive, said:

“The labour market’s resilience is a great strength of the British economy - but it can’t last for ever without sustained economic growth. Pay has normalised, inflation is dropping and the hiring market has been cooling for a year now - it’s high time that the Bank of England starts releasing the brake pedal on our economy.

“The Chancellor has the perfect opportunity in the Spring Budget to give some clear signals on growth. A long-term plan to tackle skills and labour shortages, economic inactivity and weak productivity is essential. A Spring Budget full of practical steps on skills, welfare to work and the cost of doing business will help hugely.

“We can get the wheels of investment turning by recognising that the people stuff matters as much as capital expenditure. Investment in new industries and technologies such as green skills and AI is great and necessary, but we must get more of firms thinking about how they organise work, and how to build new skills to fuel local economies across the UK."

Jon Holt, Chief Executive and Senior Partner of KPMG in the UK, said:

"We're starting the year with the labour market remaining tight overall, though we are seeing the number of job seekers increasing as demand softens.

"The skills gap is part of this story. We know the UK’s ambition is for technology to drive productivity and economic growth, and yet we still face a shortfall in skilled tech talent. If the UK is serious about equipping the workforce for a modern digital economy, we need Government and business working together and investing in reskilling and upskilling.

"All eyes will now be on the Chancellor’s upcoming Budget, and while recruiters and businesses would no doubt welcome any further cuts in payroll tax costs, they will also be hoping for a bit of policy stability during an election year.”

Methodology

The KPMG and REC, UK Report on Jobs is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 UK recruitment and employment consultancies. 

Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month. A diffusion index is calculated for each survey variable. The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses. The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease. The indices are then seasonally adjusted.

Underlying survey data are not revised after publication, but seasonal adjustment factors may be revised from time to time as appropriate which will affect the seasonally adjusted data series.

For further information on the survey methodology, please contact economics@spglobal.com.

Full reports and historical data from the KPMG and REC, UK Report on Jobs are available by subscription. Please contact economics@spglobal.com.

About KPMG

KPMG LLP, a UK limited liability partnership, operates from 20 offices across the UK with approximately 17,000 partners and staff. The UK firm recorded a revenue of £2.72 billion in the year ended 30 September 2022.  

KPMG is a global organization of independent professional services firms providing Audit, Legal, Tax and Advisory services. It operates in 143 countries and territories with more than 265,000 partners and employees working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.

About REC

The REC is the voice of the recruitment industry, speaking up for great recruiters. We drive standards and empower recruitment businesses to build better futures for their candidates and themselves. We are champions of an industry which is fundamental to the strength of the UK economy. Find out more about the Recruitment & Employment Confederation at www.rec.uk.com.

About S&P Global

S&P Global (NYSE: SPGI) S&P Global provides essential intelligence. We enable governments, businesses and individuals with the right data, expertise and connected technology so that they can make decisions with conviction. From helping our customers assess new investments to guiding them through ESG and energy transition across supply chains, we unlock new opportunities, solve challenges and accelerate progress for the world.

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