Pay surges at fastest pace in eight months boosting living standards

UK companies are boosting pay offers for new jobs at the fastest pace since October, triggering fears that inflation will not fall as expected.

Inflation has fallen back to 2 percent, largely as the result of the decision by the Bank of England to squeeze consumer spending and the economy by keeping the base interest rate at a 16 year high of 5.25 percent.

As a result, there have been hopes the Bank will have room to cut the base rate in August and again before Christmas, bringing relief to borrowers and home buyers.

However, wage rises and the increases in energy bills in October threaten to derail these hopes by pushing up inflation again.

New research from the Recruitment and Employment Confederation (REC) and KPMG shows that starting salaries for permanent staff rose at the strongest pace in eight months in June, while pay for temporary posts also increased.

The survey measures pay based on an index where any figure above 50 represents an increase. The index shows the figure went up from 55.5 in May to 57.1 in June.

The pay pressure in REC’s survey was particularly surprising because it coincided with a decline in the pace of hiring and drop in job vacancies.

REC attributed some of the hiring slowdown to a pause ahead of the general election.

Chief executive at KPMG, Jon Holt, said: “Employers are still hitting the brakes on recruitment with the general election period causing some uncertainty.

“Permanent hiring has taken a particular hit. This lack of demand means competition for the few roles available continues to drive pay growth.”

The REC figures add to evidence that labour shortages and the increase in the minimum wage rate are keeping wage inflation elevated.

Another recent report from the recruitment website Indeed showed rising pay lower paid roles in sectors like childcare, retail and hospitality.

The REC survey also found:

Staff availability improved for the 16th consecutive month. The increase was due to more workers being made redundant and fewer vacancies.

Six out of 10 sectors reported a decline in demand for permanent staff.

Neil Carberry, chief executive officer at REC, said: “As policy uncertainty abates, and interest rates drop, we expect permanent hirers to return to the market this summer.”

The new Labour government is set to launch a sweeping reform of the jobs market that strengthens workers’ rights, ends “fire and rehire” practices and boosts sick-pay protection.

Mr Carberry said that Labour must work with businesses to ensure that changes do not overburden companies with high labour costs and do not reduce flexibility in the labour market.

“Working with business to make sure the new deal for workers is delivered in a way that businesses can adopt and which supports the agility workers and employers need, is key,” he said.

Separately, a survey from the British Chambers of Commerce showed an improvement in business confidence and fewer concerns about the economy.

It found that 58 percent of companies expect an increase in turnover in the next year and that less than half of companies are now worried about inflation. It indicated lower inflationary pressures, saying fewer companies expect to increase prices in the next three months.