Severe imbalances in jobs market are ‘unsustainable’ for businesses

Severe imbalances in the UK jobs market are “unsustainable” for businesses and will clamp down on Britain’s recovery from the pandemic, according to a new report released today.

Red hot demand for workers is rubbing up against weak supply, causing wages to lift off, research by consultancy KPMG and the Recruitment and Employment Confederation (REC).

A shallower pool of available workers is intensifying competition between firms, prompting them to hike starting salaries at the fastest pace since the organisations started tracking the data.

Claire Warnes, head of education, skills and productivity at KPMG UK, said: “The current trajectory is unsustainable in the long run for businesses and the wider economic recovery.”

“The pace of demand for workers is running far faster than supply can keep up with, which is draining an already diminished pool of available talent and feeding into inflationary pressures.”

Pay for both permanent and temporary staff rose at near record levels.

KPMG and REC’s study indicates the risk of inflation becoming entrenched in the UK economy is rising.

Firms are already coping with swelling costs triggered by rising raw material and energy prices and looming tax hikes.

Mounting wage pressures could prompt businesses to hike prices in a bid to offset future margin pressure which could, in turn, cause workers to demand higher pay.

The risk of a wage/price spiral emerging was highlighted by a senior rate setter at the Bank of England this week.

“If wage earners’ expectations of future inflation rise… or if they seek compensation for the rises in the costs of living that have already occurred, wages could also accelerate further, even without any additional decline in unemployment,” said Ben Broadbent, a deputy governor at the Bank.

Threadneedle Street is under pressure to get a handle on spiraling price rises in the UK.

Inflation is running at 4.2 per cent, more than double the Bank’s two per cent target.

London’s jobs market is among the best in the country, with both permanent and temporary job adverts rising at the fastest pace in the UK over the last month.

The hotel and catering sector registered the strongest jobs market out of all sectors in November, KPMG and REC said.