Labour market slowdown might be coming to an end raising questions for Bank of England
The recent easing in the labour market might be slowing, a new survey suggests, raising questions for the Bank of England as it considers when to start cutting interest rates.
Although the number of staff appointed to permanent places continued falling in April, the pace of decline was much slower compared to previous months, according to KPMG and the Recruitment and Employment Confederation’s (REC) latest report on jobs.
Similarly, the number of vacancies—a measure of labour demand —continued falling in April but at a slower pace than in March.
The survey also showed that starting salaries continued to increase at a faster rate in April than in March. This extended the run of starting salaries, which increased faster than inflation, to 38 months.
Starting salaries for permanent roles were impacted by the change to the national minimum wage, which increased by nearly 10 per cent in April. Survey respondents also noted that “competition for quality candidates had led to upward pressure” on pay.
For temporary roles, starting salary inflation increased at its fastest pace since June 2023.
“The critical moment in any labour market slowdown is the point at which demand starts to turn around,” Neil Carberry, chief executive of the REC said. “Today’s hiring data suggests that point is close, with fewer recruitment firms reporting a drop in demand.”
“Firms have told us all year that they will be willing to hire and invest in their business when confidence returns to the wider economy – and there is a glimmer of lower inflation and the prospect of lower interest rates starting to drive that now,” he continued.
While there were some signs that the labour market slowdown was easing, the survey showed the fastest increase in candidate availability in five months due to higher numbers of redundancies.
The survey will give conflicting signals to the Bank of England, as policymakers mull their latest interest rate decision, due later today. The Bank is virtually certain to leave interest rates on hold, but might signal that a summer rate cut is on the cards.
Rate-setters have repeatedly stressed that they want to see signs that the labour market is easing before they are comfortable cutting interest rates.
Official data has shown some signs that wage growth is cooling, but it still remains around six per cent.