Slack continues to build in jobs market but employers look to ‘green shoots’
The labour market continued to loosen in July, according to a closely watched survey, but analysts were hopeful that employers would soon benefit from the “green shoots” of an economic recovery.
The latest jobs report from KPMG and the Recruitment and Employment Confederation (REC) showed another decline in permanent placements, although at a slightly slower pace than the previous month.
The survey pointed to a subdued demand for staff as a key reason for the decline in permanent placements, which extended the downturn to nearly two years.
Temporary billings also fell in July, albeit only marginally, as firms chose not to replace workers whose contracts had expired.
On the supply side, recruitment firms reported an increase in the number of redundancies at clients. In time this should take the heat out of the labour market as more candidates go after fewer positions.
According to the Office for National Statistics (ONS), unemployment has increased for four consecutive months, rising from 3.8 per cent at the end of 2023 to 4.4 per cent.
Jon Holt, chief executive and senior partner of KPMG UK, said that employer confidence had not yet returned despite easing inflationary pressures and the stability of a new government.
However, looking forward Holt was hopeful that there were “green shoots” of economic recovery which would help stimulate the jobs market.
Kate Shoesmith, deputy chief executive at the REC, agreed. “Employers are gradually emerging from the woods, gaining optimism for their businesses and the broader economy,” she said.
Although the survey suggests that slack has continued to build in the labour market, firms were still willing to offer higher starting salaries to attract the right people.
Starting salary inflation for permanent positions was “marked” in July, even if it was slightly slower than the month before.
“In the sectors where employers are still hiring, a lack of skilled talent continues to drive pay growth,” Holt said.
Stubbornly strong wage growth has been a major concern for the Bank of England over the past couple of years, with some rate-setters concerned about the strength of home-grown inflationary pressures.
While the Bank cut interest rates for the first time since 2020 last week, the pace of future rate cuts will depend on developments in the labour market.