Hiring optimism tempered by talent shortage and cost of living pressures

interactive investor comments on an ONS labour market overview.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor,says: “This is the most competitive job market in a generation, but hiring optimism is tempered by the inflationary pressures resulting from an acute shortage of talent.

“Job vacancies hit a new record level of 1.3 million, which is over a million more that the pre-pandemic level, and many companies are paying over the odds to attract and retain skilled workers. However, the high number of vacancies suggest that there is an increasing mismatch between the supply of jobs that people want and available roles.

“Growth in average total pay including bonuses was 6.8%% in February to April, or 0.4% after inflation is factored in, which is likely to concern policymakers trying to rein in spiralling wage growth and inflation. But many employees have no option but to pay a pretty penny to attract and keep the right kind of people or risk falling output that could, in turn, result in falling revenues.

“Wage growth could also point to companies seeking to support their staff through the biggest drop in living standards in generations. Bumper wage growth continues to feed into the cost-of-living crisis and in many instances, the cost of higher wages will be passed on to consumers.

“However, many workers have not seen their incomes keep up with inflation. If you exclude bonuses, pay in real terms fell on the year by 2.2% and is falling at its fastest rate in over a decade. With inflation hurtling towards double-digit territory, many workers are increasingly finding that their wages are not stretching wide enough to meet the bumper cost of seemingly everything from food to petrol.”

People not in work

Myron Jobson says: “Although the number of people neither in work nor looking for a job has fallen slightly, it remains well above the level before the onset of the pandemic. There is a perception that many of those perceived to be economically inactive since the pandemic have embraced different life values, but the cost of living crunch might lure people back to work.”

Key points

• The latest ONS Labour Force Survey (LFS) estimates for February to April 2022 show that over the quarter there was an increase in the employment rate, while unemployment and economic inactivity rates decreased.
• The UK employment rate increased by 0.2 percentage points on the quarter to 75.6%, but is still below pre-coronavirus (Covid-19) pandemic levels
• The number of job vacancies in March to May 2022 rose to a new record of 1,300,000. However, the rate of growth in vacancies continued to slow down.
• Growth in employees' average total pay (including bonuses) was 6.8% and growth in regular pay (excluding bonuses) was 4.2% in February to April 2022. In real terms (adjusted for inflation), growth in total pay was 0.4% but regular pay fell on the year by 2.2%.