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UK starting pay hit near record high as labour market tightens

·3-min read
UK's tight labour markets saw starting pay for both permanent and temporary roles increased sharply in April.
UK's tight labour markets saw starting pay for both permanent and temporary roles increased sharply in April. Photo: Justin Tallis/AFP via Getty Images

A tight labour market in the UK on the back of a combination of "robust" demand for workers and scarce candidate supply saw starting pay inflation hold close to records highs in April, a new report has found.

Analysis from KPMG and the Recruitment and Employment Confederation (REC) suggests demand for staff and increased competition has driven many firms to up pay offers for permanent and temporary workers.

Demand for UK employees rose at a "historically" sharp pace in April as overall vacancy growth slightly fell, while the overall availability of candidates fell for the 14th consecutive month in April.

The supply of permanent labour continued to decline at a faster rate compared to those for temporary staff during the period.

The report said recruitment agencies registered a surge in in both permanent placement and temporary billings at the start of the second quarter.

However, despite this the rates of growth eased to 13- and 12-month lows, respectively as low candidate supply stifled overall hiring activity, the report said.

Chart: KPMG/REC/S&P Global
Chart: KPMG/REC/S&P Global

The report was compiled by S&P Global on behalf of KPMG and REC and surveyed 400 recruitment and employment consultancies.

On Thursday, the UK government announced it was launching a review into the labour market in a bid to find longer-term solutions to the cost of living crisis.

"Tackling the economic challenges of today means helping more people into high-wage, high-skilled jobs and this review will look at how we can equip people with the skills they need to thrive in the workplace no matter where they're from," said prime minister Boris Johnson.

Read more: UK economy shrinks in March as GDP falls

It came as the UK economy contracted in March, as the cost of living crisis hits families and threatens to push the country into recession.

According to the latest figures from the Office for National Statistics, gross domestic product contracted 0.1% in March after growth for February was revised down to zero.

The economy grew 0.8% on a quarterly basis, below expectations.

The services sector was the biggest drag as consumer-facing services suffered a 1.8% slide in sales during the month, from a 0.5% growth in February as households cut spending. The sector is now 1.5% above its pre-pandemic level.

Last week, the Bank of England warned inflation could reach 10%, well above the Bank’s 2% target, later this year as Threadneedle Street hiked UK interest rates to a 13-year high of 1% in May to stem inflation. UK inflation hit a 30-year high of 7% in March.

Some BoE officials, including governor Andrew Bailey, have also raised concerns about the strength of pay pressure which could entrench price pressures.

Watch: How does inflation affect interest rates?