The UK labour market is showing signs of cooling, with recent data indicating the weakest wage growth since early 2021.
The Recruitment and Employment Confederation (REC) and KPMG reported a decline in starting pay for permanent roles, marking the lowest level since February 2021. This decline in wage growth is attributed to a growing reluctance among firms to hire, driven by uncertainty surrounding the new Labour government's budget.
The REC's permanent placements index also experienced a decline, indicating a steep contraction in hiring activity. This trend suggests that businesses are increasingly cautious and holding off on recruitment. The recent budget announcement by Finance Minister Rachel Reeves, which included tax increases, is expected to further dampen hiring prospects. These tax hikes are likely to impose additional costs on companies, leading to a more cautious approach to hiring.
The number of available candidates for jobs has risen for the twentieth consecutive month, indicating a growing pool of job seekers. However, businesses are reducing their hiring activities amidst this surplus of candidates.
The Bank of England has cut borrowing costs to stimulate economic activity and is closely monitoring wage growth as a key indicator of inflationary pressure. The central bank's decisions will be influenced by the impact of recent tax increases and the overall health of the labour market.