Report on Jobs: Economic and investment confidence rebound

The Report on Jobs uniquely provides the most comprehensive guide to the UK labour market, drawing on original survey data provided by recruitment consultancies, such as Redline Group, and employers to provide the first indication each month of labour market trends. Here are the main findings from May's report.

Overview:

• UK GDP expected to remain flat over the first half of 2023
• Overall improvement in candidate availability.
• Permanent starting salaries grow at a historically sharp rate.
• Permanent vacancies grew at a faster rate than contract/temp vacancies.

General Market Conditions

In Q1 2023, the UK recorded GDP growth of 0.1% compared with the previous quarter. UK CPI inflation was at 10.2% in Q1 of 2023 - higher than the Bank of England’s February prediction - and the sharp fall expected in April amounted to 8.7%. Achieving the Bank of England’s target of halving inflation by year-end is making slower progress than expected. So, while stronger global growth, lower energy prices, and the fiscal support in the Spring Budget were welcomed by many, labour and skills shortages continue to dominate the jobs market and are seen to be holding back growth.

Labour Availability and Appointments:

The rate of expansion in labour availability was the sharpest seen for two-and-a-half years, with permanent candidate availability increasing at a sharper rate than temporary/contract staff availability. Recruiters often linked the upturn to redundancies and a slowdown in hiring activity, buffered by lingering economic uncertainty, and restructuring effects. Speaking about this, Claire Warnes, Partner, Skills, and Productivity at KPMG UK said: “Businesses ready to grow can feel optimistic about an increasing pool of available candidates, which has expanded at the sharpest rate in two-and-a-half years. For job seekers, there was more demand for permanent workers and while temporary vacancy growth slowed, there are still plenty of opportunities.”

Permanent staff appointments, on the other hand, declined again across the UK during May, as signalled by the respective seasonally adjusted index posting below the neutral 50.0 threshold. The rate of contraction was reported to be the steepest seen since January 2021. Recruiters attributed this to firms preferring the flexibility of taking on temp/contract workers amidst difficulties sourcing suitable permanent staff.

Labour Demand and Billings:

A softer increase in demand was recorded for both permanent and contract/temporary staff midway through the second quarter 0f 2023. Permanent vacancies rose at a solid pace, though at the second-slowest rate since February 2021. Contract/Temp roles, meanwhile, expanded at the weakest rate recorded for 33 months.

Engineering was among the monitored job categories that registered an increase in staff demand in May, showing the second-strongest rise in demand for temp/contract vacancies. Skills shortages were noted for software developers, electronics, hardware, mechanical, electrical, and RF engineering. Contractor demand continued in most IT areas, especially software development.

The seasonally adjusted Permanent Salaries Index pointed to a rise in starting salaries for both permanent and contract/temporary staff for the twenty-seventh successive month in May. Though the current period of inflation is well above the series trend, the rate of growth was the softest seen for just over two years. The key driver of salary and rate inflation in the latest survey period was said to have been the latest hike in starting salaries, spurred on by competition to attract and secure suitably skilled staff amidst the rising cost of living.

UK wages have risen at their fastest rate in 20 years, excluding the pandemic, raising expectations that UK interest rates will have to rise. Regular pay excluding bonuses increased by 7.2% in the three months to April, although it still lags behind inflation - the rate at which prices rise. According to the ONS, pay when adjusted for inflation fell by 1.3% in the three months to April. The Bank of England has warned big pay rises are contributing to the UK's still-high rates of inflation.

Neil Carberry, REC Chief Executive, said: “For hiring businesses, greater candidate availability will help resolves shortages, though inflation means wage growth remains high.”

Future Outlook:

On 7 June, the OECD published new forecasts for the world economy. The OECD said that while the global economy has improved, the recovery will be weak. Inflation is expected to fall due to higher interest rates and lower food and energy prices. The OECD forecasts UK GDP to rise by 0.3% in 2023 and by 1.0% in 2024.

According to the ONS there are more than 9 million people between the ages of 16 and 64 are now outside the labour market altogether, a group made up of students, with more than 2.5 million with long-term health conditions, early retirees and carers for young children or elderly relatives.

The REC’s Labour Market Tracker showed that there were almost 1.7 million active job adverts in the week of 17-23 April 2023. This number shows a 4% increase compared to the previous week (10-16 April) and 19.5% increase compared to the year before (18-24 April 2022). The figure had stayed above 1.4 million since January 2022. 

In reflection of the UK’s improved economic outlook, the REC’s latest survey found that employers’ confidence in making hiring and investment decisions was restored to positive territory for the first time since January-March 2022. Business confidence in the UK economy also improved to positive indicators. 

As confidence rose, employers reported that forecast demand for both permanent and temporary workers in the next three months increased to net: +18. It is important to re-emphasise the people and skills challenges we face. As Claire Warnes comments on the situation, “It’s a tough time for employers, and what they really need is an upskilled and reskilled workforce which can move between sectors and quickly fill their vacancies. This will in turn aid economic recovery. The Government’s new Local Skills Improvement Fund scratches the surface of the problem, but more needs to be done to urgently address the UK’s widening skills gap.”

Redline Group changes lives every day, building world-class teams for technology companies. We 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 our passionate, knowledge-led people create trusted recruitment solutions, 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 David Collins on DCollins@RedlineGroup.com or call him at 01582 878804.