UK pay growth accelerates to five-month high, recruiters say

[LONDON] Salaries are picking up in the UK after months of near-stagnation, according to a survey that’s closely watched by the Bank of England (BOE) policymakers.

The Recruitment & Employment Confederation (REC) and KPMG said starting pay for permanent staff rose at the fastest pace in five months in November, as firms stepped up efforts to attract talent in areas facing skill shortages.

The numbers could fuel worries about sticky price pressures ahead of an interest-rate decision from the BOE later this month.

At the same time, the survey also contained some signs of labour market easing. Hiring continued to fall, albeit at a softer rate, and the number of candidates looking for work surged.

The report echoes the BOE’s Decision Maker Panel (DMP), painting a picture of stubborn wage inflation despite a rapid deterioration in employment. Policymakers often cite the REC survey as an early warning signal of labour-market pressures before they surface in official data.

A pick-up in pay growth could provide ammunition to the monetary policy committee’s most hawkish members – such as Catherine Mann or Megan Greene – who fear that a loosening labour market won’t bring down wage pressures, forcing companies to keep raising prices instead.

The BOE’s DMP showed companies expect to increase wages by 3.8 per cent over the next year, the highest since April and above the bank’s 3 to 3.5 per cent comfort levels. Expectations possibly reflect a 4.1 per cent increase in the minimum wage due to take effect in April, a figure that was widely expected before Reeves confirmed it ahead of her Nov 26 fiscal statement.

While the UK central bank is expected, on balance, to reduce interest rates at its next meeting on Dec 18, the path forward is even less clear. BOE policymakers are increasingly divided over how to balance weak growth and rising unemployment with the risk that inflation will settle above their 2 per cent target.

The labour market has deteriorated this year as firms cut jobs to cope with Labour’s increase in payroll taxes. Speculation of more fiscal pain ahead of Reeves’ budget on Nov 26 added to the hiring slowdown, the REC report showed.

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With no new employment taxes unveiled in the fiscal plan, however, conditions may begin to steady.

“Pre-budget nerves knocked temporary recruitment back just a little in November after a growing October, but the overall picture was still relatively benign by comparison to the last year,” Neil Carberry, chief executive at REC, said. “We can see signs of the market stabilising.” BLOOMBERG