UK starting salaries and pay for temporary workers rose at their slowest pace in two and a half years in September, adding to signs that the labor market is cooling as higher interest rates weigh on the economy.
(Bloomberg) — UK starting salaries and pay for temporary workers rose at their slowest pace in two and a half years in September, adding to signs that the labor market is cooling as higher interest rates weigh on the economy.
A survey from KPMG and the Recruitment and Employment Confederation found employer budgets under strain and an increased number of job candidates following a jump in redundancies. Permanent staff hiring continued to decline, albeit at a slower pace.
The findings suggest that successive interest-rate increases by the Bank of England to tame inflation are sapping demand in the economy and taking the heat out of wage settlements.
The BOE halted its hiking cycle last month despite official data showing wages rising at a record pace. It cited the KPMG/REC survey as including clear signs of a softening labor market, arguing that official readings are “difficult to reconcile” with other pay indicators.
Claire Warnes, head of education, skills and productivity at KPMG UK, said the jobs market is “starting to look slightly precarious again.”
“For several months, strong pay growth has been a consequence of a tight labor market,” she said. “But strains on employers’ budgets are now affecting the rate of starting salary inflation.”
The survey found that companies are hesitant to hire due to economic uncertainty and efforts to control costs, which are also helping to cap wage growth. Firms also said another improvement in candidate availability was “linked the latest upturn to redundancies and a slowdown in market conditions.”
BOE Deputy Governor Ben Broadbent said last week there are now “reasonably clear signs that monetary policy tightening is having some effect,” including in the jobs market where unemployment is almost a percentage point higher than its post-pandemic low in the summer of last year.
Broadbent warned that the labor market could “weaken quite suddenly” if businesses that have hoarded labor determine that economic activity has not recovered enough to justify holding onto staff.
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