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Pay growth picks up speed as candidate numbers surge

Employers must balance the push and pull of increased costs and pay growth, said Vivup's Moyle -

Candidate supply has continued to rise sharply in December 2023 as pay growth picked up from November lows, according to the latest figures from the Recruitment and Employment Confederation (REC) and professional services firm KPMG.

Although recruitment consultancies reported a further decline in hiring activity at the end of 2023, there have also been slower falls in both permanent and temporary billing than those seen in November.

Justine Andrew, head of education, skills and productivity at KPMG, said: “It’s a muted end to the year for the labour market, which despite some loosening during 2023, continues to be tight. 

“While the data for December shows hiring activity for both permanent and temporary roles fell at a softer rate than the previous month, businesses are still making redundancies and pausing hiring due to a lacklustre economic outlook. 

“This has driven a further decline in permanent job opportunities, while we continue to see a rising number of people looking for new work.”

Read more: FTSE 100 CEOs have already earned more than average employee this year

The data indicated that the rate of starting salary inflation picked up from November and was sharp overall. Temporary pay growth also quickened, climbing to a four-month high.

Andrew said while competition for suitably qualified staff had contributed to further increases in pay, there were indications that employers' budgets were under greater pressure.

She said: “For those lucky enough to start a new role there was another sharp increase in starting salaries due to competition for skilled workers. But the rise wasn’t as high as those seen earlier in 2023 as businesses face ongoing pressure on their budgets.”

Simon Moyle, CEO of Vivup Benefits, said employers will spend 2024 caught in the push and pull of increased costs and pay increases.

He told HR magazine: “The pressure a lot of businesses will be under this year is to try to balance pay increases which lead to reduced margins or increased costs being passed to clients which can reduce revenue overall. 

“Living wage increases will squeeze many businesses so I would expect many to lean into employee benefits to supplement basic salary whilst also focusing on flexibility and policies that impact those that need support the most.”

Candidate availability continued to rise at the end of the year, as redundancies and a slowdown in hiring pushed up labour supply. 

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Meanwhile, total vacancies fell for the third time in the past four months during December.

Yet the decline was similar to that in November and only marginal.

This reflected a slight reduction in permanent staff demand for the fourth successive month, while growth in temporary vacancies reached a 37-month low.

Neil Carberry, REC chief executive, said that the chancellor must use the spring budget to boost the jobs market.

He said: “Recruiters went into 2024 with hope that an upturn is coming, based on feedback from clients. Driving this economic growth would be a huge benefit for us all, leading to more successful firms, higher pay and the ability to cut taxes and fund public services. But the growth must come first. 

“The chancellor has already set a date for the budget. He should use it to set out steps that set firms free to grow the economy, from skills reform to regulatory change, including a more balanced debate on immigration for work and its impact on growth.”