ECONOMICS COMMENTARY — Apr 08, 2024
UK recruiters signal coolest pay growth for over three years in March
Recruitment industry survey data are particularly useful as they provide a leading indicator of the tightness of the labour market in terms of the balance of supply and demand for staff, as well as resulting pay pressures. With policymakers at the Bank of England eager to see signs of moderating pay growth prior to cutting interest rates, the latest data paint an encouraging picture. The March survey showed the slowest pay growth for over three years, as recruiters report reduced demand for staff and improving staff availability.
Less encouraging is the signal from the survey that firms are cutting employment, which could in turn lead to a rise in unemployment in the months ahead.
Labour market cools
A softening of the UK labour market was signalled by the March recruitment industry survey, compiled by S&P Global on behalf of the Recruitment and Employment Confederation (REC) and KPMG.
The survey, based on questionnaire responses from around 400 recruiters, ranging from large employment agencies to specialist headhunters, found demand for staff from employers to have fallen for the sixth time in the past seven months. Moreover, the past two months have seen the steepest falls in demand for staff since the pandemic lockdowns in 2020. Excluding the pandemic, the recent demand slump has been the most severe since the global financial crisis in 2008-9.
A corollary of the downturn in demand for staff has been an improvement in the availability of candidates to fill vacancies. Staff availability has in fact now improved for 13 successive months after two years of continual decline, which has in turn fed through to a gradual easing of pay growth from the survey record highs seen in the first half of 2022.
Salary growth at 37-month low
Although the latest survey index relating to average salaries awarded to candidates placed in permanent jobs remained above the 50 no change level, indicating a rise in salaries during the month, the reading of 53.3 compares with a pre-pandemic decade average of 57.6, therefore hinting at below average pay pressures in the region of a 3% annual rate. The latest rise in salaries was in fact the lowest for just over three years and, if the slump in pay seen in the early months of the pandemic is excluded, the lowest since July 2016.
The recruitment survey data tracking average hourly rates paid to temporary (and contract) staff has also recorded a marked slowing in pay growth in recent months, and importantly is also running below the survey's pre-pandemic ten-year average.
Weakened job market opens door for rate cuts
Thus, while lower headline inflation is widely expected to curb pay growth for incumbent employees in the months ahead, the weakening of the labour market and corresponding cooling of pay growth for new appointees signalled by the recruitment industry surveys should further add to downward pay pressures.
Upcoming official data are therefore likely to show a further easing of regular wage growth from the 6.1% rate of increase seen in the three months to January, which will in turn be important in further opening the door for interest rates cuts at the Bank of England.
Rising unemployment?
The concern is that the steep drop in demand for staff, and the accompanying downturn in the number of people placed in permanent jobs by recruitment agencies in recent months, could lead to a rise in unemployment.
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Chris Williamson, Chief Business Economist, S&P Global Market Intelligence
Tel: +44 207 260 2329
Purchasing Managers' Index™ (PMI®) data are compiled by S&P Global for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.