Summary:
Britain’s labour market has cooled further in December, according to a survey of recruiters published on Tuesday. The monthly index of vacancies fell to 53.0, its lowest since February 2021 and down from 54.1 in November. The survey also showed an easing in wage pressures, with starting salaries for permanent staff and pay rates for temporary workers growing at the slowest rate since April 2021.
Economic Slowdown: Labour Market Cools
Britain’s labour market has continued to cool, with a decline in vacancies and wage growth, according to a recent survey of recruiters. The Recruitment and Employment Confederation (REC) and KPMG have published a monthly index of vacancies, which fell last month to 53.0, its lowest since February 2021. This decrease is down from 54.1 in November and may ease some concerns of the Bank of England about inflation pressure.
The survey, which tracks the labour market closely, has shown an easing in wage pressures. Starting salaries for permanent staff grew at the slowest rate since April 2021, similar to their average level before the COVID-19 pandemic. Pay rates for temporary workers also showed a slower growth rate, down from previous months.
According to REC chief executive Neil Carberry, the slowdown in permanent placements is not unusual, but this one comes as part of a wider softening trend in the permanent market. Recruiters have reported that firms are pushing hiring activity back into January due to high inflation and economic uncertainty. This uncertainty is driving down business confidence, leading to a slower labour market growth.
Britain’s economy looks set to contract in 2023, according to most economists polled by Reuters. Business surveys also show cooling price pressures, which might reassure the Bank of England that inflation is under control. However, the central bank is worried about double-digit inflation becoming engrained in public psychology and likely raising interest rates again next month.
Central Bank Concerns: Risk of Perpetual Inflation
The Bank of England’s chief economist, Huw Pill, warned on Monday about a risk of domestically generated inflation achieving self-sustaining momentum. The central bank is concerned that high inflation could become embedded in public psychology and lead to further rises in prices.
In response to this concern, the BoE might raise interest rates again next month. However, the question remains whether rate hikes will be enough to combat inflation or if they will trigger economic recession instead.
Impact on Major Industries: Cooling Labour Market Concerns
The REC survey showed that placements of permanent staff contracted at the fastest rate since January 2021. This slowdown in new employment and hiring activity could have significant implications for many industries, especially those most affected by inflation like construction.
As Carberry noted, "the overall picture is still of a robust labour market," although the contraction in sectors such as construction raises concern due to its importance to the economy’s health. The cooling labour market trend may indicate difficulties ahead in these critical sectors.
Labour Market Resilience: Not All Doom and Gloom
Despite the slowdown in permanent placements, it is essential to note that the UK labour market remains strong compared to other economies. Most business surveys show a reduction in employment activity due to concerns over economic performance rather than outright job losses or unemployment increases.
According to REC’s annual survey report, employers remain committed to maintaining skilled workers and investing heavily in training despite facing uncertain times.
The UK labour market showed notable resilience during the COVID-19 pandemic, maintaining its overall demand for work. It remains robust enough to keep the unemployment rate steady at close to 4%. This capacity of the labour force has often allowed it to outcompete other countries when inflation rises rapidly elsewhere.
Conclusion
Britain’s economic downturn appears inevitable as more surveys indicate that job placements will slow down further, adding weight to Bank of England concerns about long-term inflation. However, experts agree that wage pressures continue to ease and starting salaries for newly hired candidates remain stable compared to previous periods.
