Report on jobs: Businesses turn to contract staff to fill in for permanent vacancies

The Report on Jobs by the KPMG and REC is unique in providing the most comprehensive guide to the UK labour market, drawing on original survey data provided by recruitment consultancies, such as the Redline Group, and employers to provide the first indication each month of labour market trends. Here are the main findings for January 2023.

Overview: 

• Growth in demand for staff picks up signalling shallower economic downturn.
• Temporary and Contractor vacancies rose at a stronger rate as businesses lean on flexible staffing arrangements.
• Starting salaries continue to rise with limited candidate availability.

Permanent staff appointments fell for the fourth month in a row, but at the lowest rate, with businesses leaning on temporary and contract workers to fill vacancies. Contract billings also rose at the quickest rate since last September. The downturn in total candidate supply moderated further at the start of the year, but supply is still challenging.

For the first time in nine months, a rise was seen in the Total Vacancies Index which signalled a sustained upturn in demand for workers. The quickest increase in permanent vacancies for three months supported the increase in overall demand for staff. Speaking about this, Claire Warnes, Partner, Skills, and Productivity at KPMG UK said: “January saw permanent vacancies rise at a quicker pace for the first time in nine months, with the rate of demand growth the strongest seen since last October, giving recruiters, employers and job hunters a reason to be cautiously optimistic for the year ahead.”

Employers were cautious while making permanent hires:

Recruiters frequently mentioned that employers had adopted a cautious approach to permanent staff hires, including longer decision-making, due to concerns around the economic climate. Candidates also largely reflected a more cautious attitude due to concerns over job security amid the cost-of-living crisis and an uncertain economic outlook. Starting salaries, however, continued to climb sharply in January. Where contract/temp billings increased, this was generally attributed to a preference for short-term staff as well as efforts to fill vacancies amid a lack of available permanent workers. The further uptick in billings received from the employment of temporary/contract staff in January stretched the current period of expansion to two-and-a-half years. Claire Warnes had this to say: “With the cost of living continuing to place upwards pressure on pay, job security causing low candidate supply and employers relying on temporary staff as permanent placements decline again, the jobs market remains volatile. Recruiters and employers should be thinking creatively about how to attract and retain permanent hires to bring about stability, including by taking on more apprentices across a range of age groups, and investing in upskilling and reskilling their existing staff.”

Of the ten monitored job categories, nine registered an increase in permanent and contract/temp staff demand in January. The Engineering sector experienced the fifth-highest rate of growth. The rate of growth was particularly interesting, with respect to skills shortages in electrical and mechanical engineering roles, along with software developers, cybersecurity and technical sales professionals being sought out. Contract skills shortages on the other hand revealed higher demand for design engineers, mechanical engineers, software engineers/developers, and cyber security professionals.

Future Outlook:

The Office for National Statistics shared that the total number of vacancies remains 365,000 above the January to March 2020 pre-pandemic level at 1,134,000, between November 2022 and January 2023. The UK unemployment rate was estimated at 3.7%, 0.2 percentage points higher than the previous three-month period and 0.3 percentage points below pre-coronavirus levels. Although the economic inactivity rate decreased by 0.1% in the quarter from September to November 2022, indicating that fewer people are leaving the workforce, the high levels of vacancies still point to a tight labour market. There is still much to be done about the high levels of inactivity. Neil Carberry, Chief Executive of the REC, had this to about the situation: “The need to address the fundamental challenges our labour market faces has not changed with the turning of the year. From skills to tackling economic inactivity, and from immigration to childcare there is much that can be done in partnership with business to help our economy grow and workers prosper. Ahead of the Budget, the Chancellor should put the people stuff first across the whole of government.”

Although that alone won’t fix the issue. The Institute for Employment Studies writes that this month, economic inactivity due to early retirement is now back to where it was before the pandemic. The challenges that we are now facing are primarily around fewer people entering work rather than more people leaving it. Skills shortages in the UK persists, and employers have continued to turn to contract and temporary resource to meet their business needs. J.P.Morgan Global Manufacturing index has, however, identified that the contraction in  manufacturing output worldwide was now showing signs of easing at start of 2023. Manufacturers' business confidence continued to revive at the start of 2023, with optimism hitting a ten-month high.

Redline Group continue to be one of the UK’s most trusted Electronics and High Technology recruitment specialists for professional Contract, Permanent and Executive positions. With four decades of experience in knowledge-led recruitment, Redline is perfectly positioned to offer advice about future-proofing your permanent, contract and interim needs in the technology sector. For more information about this month's report, contact Graham Cross on GCross@RedlineGroup.com or call him at 01582 878849.