What the findings show

The headline is that recruitment remains incredibly difficult right now. The net employment balance – which measures the difference between employers expecting to increase staff levels and those expecting to decrease staff levels in the next three months – remained high at +34. This continues to exceed pre-pandemic levels, pointing to strong employment intentions in the coming quarter. What’s more, 47% of employers have hard-to-fill vacancies. These are most common in education (56%), transport and storage (55%), and the voluntary sector (53%).

Employers are utilising a range of strategies to achieve the workforce size needed to meet demand. Perhaps most obviously they are raising pay. The median expected basic pay increase stands at 3% in total. Expected pay awards in the private sector have risen to a median of 4%, which is the highest since we started measuring in 2012. However, inflation currently stands at 9.4% in the 12 months to June 2022 and is expected to peak at 13% later this year. This means that despite high nominal pay increases, pay packets are shrinking in real terms. Another strategy employers are using is to focus on retention. The proportion of employers planning on making redundancies is below pre-pandemic levels at 13%. When asked about planned responses to recruitment and retention difficulties, the top responses of employers included upskilling existing staff (41%), followed by advertising more jobs as being flexible (35%), and raising wages comes in third at 29%.

Some may ask how this narrative of a booming labour market tallies with some of the more dour news of a forthcoming recession. The Bank of England recently forecasted a recession, which will begin in the fourth quarter of this year. However, the summer LMO relates to the third quarter. We are not yet in recession. What’s more, the Bank’s report notes that ‘unemployment only starts to rise above its current level from mid-2023’. Unemployment is a lagging indicator. Of course, there is also the possibility that in the Bank’s words ‘the labour market may respond more rapidly to slowing demand’. 

What next?

It appears inevitable that the labour market will peak soon and there may have been some early indication of this in the official labour market statistics. As the pandemic wound down and the economy reopened, there was a dramatic rise in the number of advertised vacancies with each quarter seeing new records set. For the first time since mid-2020, the number of vacancies has fallen. However, it remains at a high level. For now, there is strong demand for goods and services and employers are struggling to get the staff they need to deliver this. This pressure will lessen as the economy enters recession, replacing one problem (labour supply constraints) with another - namely surviving the downturn and supporting the workforce through the cost of living crisis.