The UK’s largest employers have warned the jobs market is cooling amid a slowdown in wage growth in July and a fall in vacancies, extending an almost two-year downturn in hiring demand for permanent staff.
Figures from the Recruitment and Employment Confederation (REC) and the accountancy firm KPMG showed a fall in permanent staff placements in July as large employers made more redundancies and hired fewer new starters.
In a survey of 400 recruitment and employment consultancies, which is closely monitored by the Bank of England, the fall in staff appointments was mirrored by a slowdown in wage growth.
While companies continued to increase pay rates to recruit suitable candidates, which in some cases remained in short supply, wage growth fell slightly on the level recorded in June and was below the monthly trend.
The Bank cut interest rates last week for the first time in more than four years, after inflation fell from the highest levels since the early 1980s back to the 2% target in May and June.
Threadneedle Street has said it is watching for more evidence of a cooling jobs market, lower wage growth and a slowdown in price rises in the service sector of the economy before cutting interest rates again.
The Bank has also said that resilient wage settlements and service sector price increases are likely to drive headline inflation above its 2% target within months, but that the measure is then likely to fall back to about 1.7% in two years’ time, then to 1.5% in 2027.
Financial markets expect the central bank to keep interest rates on hold at 5% when policymakers next meet on 19 September, before it resumes cutting them in November. City investors predict the base rate could then be cut to about 3.5% before the end of next year.
According to the latest snapshot from the REC/KPMG report on jobs, which is compiled by S&P Global, the number of vacancies fell in July while demand for hiring was subdued. There was also a reduction in temporary billings, although the rate of contraction was marginal.
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The survey showed recruiters were willing to raise pay to attract workers amid a “dearth of suitable candidates”. While it said wage inflation remained high relative to recent years, the report showed pay growth had slowed on the previous month. Temporary pay also increased, but only marginally, and at the weakest rate for almost three-and-a-half years.
Kate Shoesmith, the deputy chief executive of the REC, said: “The weaker growth in both salaries and temp pay suggests that employers are keeping pay in line with inflation, as the Bank of England want, and the interest rate cut is welcome. Employers will need more of the same to maintain confidence.”