With surging interest rates beginning to exert a cooling effect on the job market, hiring has plunged at its steepest rate in over three years.
Employers are adopting a notably cautious approach to expanding their workforce, with many implementing hiring freezes, as per findings from a prominent survey conducted by the renowned accounting firm KPMG and the Recruitment & Employment Confederation (REC).
The data also reveals a drop in temporary staff hires, marking the first decline since July 2020, further corroborating the emerging slowdown in the labour market. Despite enduring the most rapid series of interest rate hikes since the 1980s, the labour market had exhibited surprising resilience, boasting historically low levels of unemployment.
However, the latest figures indicate that the tide is slowly turning, tilting the balance of power between workers and employers.
It is impacting both temporary and permanent roles
The survey indicates that the pool of job candidates has expanded for the sixth consecutive month, encompassing both temporary and permanent roles. This expansion primarily reflects an uptick in redundancies and a deceleration in job market activity. Job seekers are discovering that their options have dwindled, with vacancies shrinking for the sixth consecutive month in August.
While starting salaries continued to rise significantly, driven by mounting living costs and intense competition for talent, the pace of wage growth has slowed considerably compared to a year ago.
Neil Carberry, CEO of REC, explained, “August typically witnesses a slowdown in new permanent roles, but this year, it has been compounded by firms’ hesitancy to embark on new hiring, a trend that emerged in the spring. As inflation starts to recede, it is probable that firms will reenter the market later in the year – employer surveys suggest that confidence may be on the rebound. However, for now, the labor market is experiencing a surplus not seen since the early days of the pandemic.”
What about price increases?
In another noteworthy development signalling a potential downturn in inflation, business leaders reported the lowest expectations for price increases since the Bank of England commenced its interest rate hikes nearly two years ago. Businesses anticipate raising their prices by 4.4 percent over the coming year, marking the smallest expected increase since November 2021, just before the central bank initiated its interest rate hikes. The Bank of England’s Decision Maker Panel observed the sharpest monthly drop in projected inflation since the survey’s inception in 2017.
Wage growth remains stagnant
Expected wage growth for the same period remained constant at 5 percent in August, while the three-month moving average experienced a marginal dip of 0.1 percentage points to 5.1 percent. This figure is lower than the realised wage growth, which stood at 6.9 percent in both the single-month data and the three months leading up to August.
These developments coincide with remarks from the Governor of the Bank of England, Andrew Bailey, suggesting that interest rates may be approaching their zenith, as he provided testimony to members of Parliament. The Bank of England has incrementally increased interest rates 14 times since December 2021, raising the base rate from 0.1 percent to 5.25 percent.
Amelia Brand is the Editor for HRreview, and host of the HR in Review podcast series. With a Master’s degree in Legal and Political Theory, her particular interests within HR include employment law, DE&I, and wellbeing within the workplace. Prior to working with HRreview, Amelia was Sub-Editor of a magazine, and Editor of the Environmental Justice Project at University College London, writing and overseeing articles into UCL’s weekly newsletter. Her previous academic work has focused on philosophy, politics and law, with a special focus on how artificial intelligence will feature in the future.
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