INFLATION busting pay raises for those who change jobs are fading in Britain, with starting salaries climbing at the slowest pace in 34 months.

Those findings from the Recruitment & Employment Confederation (REC) and KMPG add to evidence that the UK labour market is cooling, easing upward pressure on prices that has alarmed the Bank of England (BOE).

The survey published on Thursday (Feb 8) found employers in cautious mood, hiring significantly fewer permanent staff and restraining pay increases amid concerns about the economic outlook and pressure on spending budgets.

REC also counted fewer job vacancies and an increase in the number of candidates seeking work. Those forces made firms reluctant to give new hires the big pay bumps that workers demanded when companies were scrambling to draw in staff after pandemic lockdowns ended.

“Pay has normalised, inflation is dropping, and the hiring market has been cooling for a year now,” REC chief executive Neil Carberry said in a report on Thursday. “It’s high time that the Bank of England starts releasing the brake pedal on our economy.”

The central bank is watching pay figures carefully for signs that price pressures will stick around longer than they expect. Officials are forecasting CPI inflation to drop from 4 per cent currently to the 2 per cent target around the middle of this year, prompting speculation the BOE will cut rates shortly.

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BOE deputy governor Sarah Breeden yesterday pointed to pay figures as one of the key pieces of data she’s looking at to determine how long interest rates should remain at a 16-year high.

“I will look at how pay growth and demand are influencing firms’ pricing decisions, to assess how persistence is evolving in relation to what is embodied within our forecast,” Breeden said in a speech. “And that will allow me to be more confident that inflation will return sustainably to target in the medium term.”

Many employers have been turning to temporary staff to fill jobs in the face of economic uncertainty and labour shortages. REC said temporary job vacancies continued to increase but only marginally and at the slowest rates since November 2020. Stalled hiring and redundancies increased the pool of available candidates, the report said.

Pay rates continue to rise despite a loosening labour market, driven by competition for skilled staff. Workers are also demanding higher pay to cope with a jump in prices over the past few years when inflation peaked over 11 per cent.

“The skills gap is part of this story,” said Jon Holt, CEO and senior partner of KMPG in the UK. “We know the UK’s ambition is for technology to drive productivity and economic growth, and yet we still face a shortfall in skilled tech talent.” BLOOMBERG