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Skills shortfall and inflation drive up UK wages to record highs

UK wages
UK wages grew at the fastest pace since records started in October 1997. Photo: Getty (georgeclerk via Getty Images)

A shortage of candidates for UK jobs and soaring inflation is stinging companies as wages surge at the fastest rate in 25-years.

Figures from the latest report on jobs from KPMG and the Recruitment and Employment Confederation (REC) show the average salary awarded to new permanent joiners climbed more last month than at any time since records began in October 1997.

The increase reflects both huge demand from employers and the impact of soaring prices as businesses boost salaries for all workers to compensate for 30-year high inflation.

UK inflation rose to 6.2% in February and is expected to reach 8% this month.


The survey data pointed to slower expansions in both permanent staff appointments and temp billings across the UK in March. While this was high compared to historical standards, rates of increase fell to 12-month and 11-month lows, respectively.

Overall vacancy growth hit a six-month high, with vacancies surging for the fourteenth month since September.

Read more: National insurance rise starts to hit pay packets of millions of workers

Recruiters frequently mentioned that skills shortages continued to weigh on their ability to fill vacancies.

Several sectors, including IT and hospitality were struggling to fill jobs, citing low unemployment, fewer EU staff and uncertainty over the Ukraine conflict, which has made many employees hesitant about switching jobs.

While sharp wage rises would usually be positive news for workers, soaring energy prices and inflation mean most will still suffer as the cost of living rises

Permanent placements and temporary billings indices. Chart: REC
Permanent placements and temporary billings indices. Chart: REC

With the rate of increase in both permanent and temporary placements at the lowest level in a year, the shortages hand staff bargaining power when it comes to negotiating their pay.

"We can clearly see that labour and skills shortages are driving inflation in these latest figures," said Neil Carberry, chief executive of the REC. "Starting salaries for permanent staff are growing at a new record pace, partially due to demand for staff accelerating and partially as firms increase pay for all staff in the face of rising prices."

Read more: BT hands workers biggest pay rise in 20 years but unions reject offer

UK wages grew 4.8% year-on-year in January, to an average weekly pay, including bonuses, of £596 ($778), according to the Office for National Statistics.

The news came as Tesco (TSCO.L) moved to increase its hourly wage for shop staff and warehouse workers by 5.8% from £9.55 to £10.10 from 24 July.

Britain's biggest supermarket, and one of the largest private employers, said the new rate of pay is part of a £200m investment into its workers, which will also include an extension of the colleague discount allowance and new training.

Rivals including Lidl and Aldi had already increased pay this year.

Meanwhile, Sainsbury’s (SBRY.L) is expected to announce a pay increase for retail staff in outer London, taking their pay from £10.50 an hour to £11.05. The rise means those Sainsbury’s and Argos staff will be receiving the Real Living Wage for their location, in line with the grocer's staff across the rest of the UK.

On Thursday, telecoms giant BT (BT-A.L) said that it will award all BT, Openreach, Plusnet and EE frontline workers a £1,500 pay increase, the largest rise for frontline workers across the group in 20 years.

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