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Pressure on starting pay starts to ease

Pay remains a key issue for many companies, but the pressure to increase remuneration for staff may be starting to ease.

The increase in starting salaries has slowed to its slowest pace in more than two years, suggesting that pressures from wage inflation could be easing.

Inflation in both starting salaries and temporary wages cooled in June to their weakest levels since April 2021, according to research commissioned by the Recruitment and Employment Confederation and KPMG, the Big Four accountancy firm.

An index based upon responses from about 400 recruitment and employment consultancies on starting salary levels declined to 56.4 for temporary jobs in June, from 57.4 in May, and for permanent roles to 58.6 from 59.6.

Rising average pay has led investors to bet that the Bank of England will be more aggressive in tackling inflation, lifting its base interest rate still further from its present 5 per cent.

The most recent wage figures from the Office for National Statistics showed that average weekly earnings, excluding bonuses, had risen by 7.2 per cent over the 12 months to April, up from 6.7 per cent in March and ahead of forecasts of a jump to 6.9 per cent.

A slowdown in the rate of hiring and job cuts by companies increased the number of people looking for work for the fourth consecutive month in June. While the number of vacancies continues to rise, the rate of growth cooled to the lowest level in more than two years, led by permanent roles.

While the figures can be seen as positive for curbing inflation, Claire Warnes, a partner at KPMG UK, said that the sharp upturn in candidate availability was a big concern for the economy. “Employers are also tending towards temporary hires, given lingering economic uncertainty,” she said, “and yet the labour market remains reasonably resilient, with notable demand for skilled workers, both permanent and temporary, across a multitude of sectors this month.”

The latest ONS data showed that overall vacancies continued to fall in May, but remained in excess of a million and historically high.

Neil Carberry, the confederation’s chief executive, said there was a risk of seeing “an element of Groundhog Day” in June’s hiring numbers, with more of the same trends recorded in previous months, “but there was quite a lot of change in the shadows of the headline data. There was a significant step up in the number of candidates looking for a new permanent or temporary role.

“This is likely driven by people reacting to high inflation by stepping up their job search and by some firms reshaping their businesses in a period of low growth. It’s no surprise, therefore, that the rate at which wages are rising has dropped again.”

The cautious findings were at odds with separate research carried out by the CBI that showed rising optimism within the financial services sector, where headcount last month grew at its fastest rate since 2006. As well as a more bullish outlook, employers expected the volume of lending activity to rise sharply over the next three months, although they also anticipate that the value of bad debts will increase. Non-performing loans remained steady, but lenders expect them to rise over the next three months.

Emma Powell | Pressure on starting pay starts to ease (thetimes.co.uk)

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