The latest KPMG and REC, UK Report on Jobs: London highlighted a rapid contraction in the number of permanent staff appointments, alongside a fresh downturn in short-term billings midway through the third quarter.
Reduced hiring activity coincided with further falls in both permanent and temp vacancies. Meanwhile, the availability of candidates expanded rapidly during August, with the latest upturn in part driven by reports of redundancies.
Nonetheless, acute and specific skill shortages continued to feed through to higher pay. However, trends diverged, as starting salaries grew at a historically subdued pace, while the rate of temp wage inflation accelerated to a ten-month high and was much stronger than the long-run average.
The KPMG and REC, UK Report on Jobs: London is compiled by S&P Global from responses to questionnaires sent to around 100 recruitment and employment consultancies in London.
Downturn in permanent placements remains marked
August data revealed a further fall in permanent staff placements in London, thereby extending the current run of contraction to 11 months. While the rate of decrease eased to a three-month low, it remained historically sharp overall. The downturn reflected hesitancy to commit to new hires at employers amid lingering economic uncertainty and signs of softening demand conditions.
After leading the downturn in permanent placements in each of the prior six months, London registered the slowest reduction of all four monitored English regions during August. Meanwhile, the Midlands saw the most pronounced contraction.
Temp billings fell moderately across London in August. The respective seasonally adjusted index fell below the neutral 50.0 level to signal the first contraction in short-term billings in ten months. According to surveyed recruiters, reduced workloads among clients had weighed on recruitment during the latest survey period.
After three years of growth, a contraction in temp billings was also seen at the national level, with London recording the strongest decline of all four monitored English areas. The Midlands was the only region to register an expansion.
For the sixth month running, recruiters based in London recorded a reduction in demand for permanent staff midway through the third quarter. The rate of contraction quickened slightly from July and was sharp overall.
Similarly, temp vacancies fell for the fifth successive month in August. However, the pace of decline softened slightly over the month and was modest overall.
Permanent labour supply grew rapidly in August
Recruiters across London pointed to a ninth successive monthly expansion in permanent staff supply during August. The rate of growth was the second-sharpest seen since December 2020, despite having eased notably from July’s recent high. Redundancies and a general reduction in hiring activity were linked to the latest uptick.
The rate at which permanent candidate numbers expanded across London outpaced the other three surveyed English regions. The South of England recorded the slowest, yet still a rapid improvement.
Temp candidate availability expanded substantially across London in August. Moreover, the rate of growth quickened for the fifth month running to the quickest in two-and-a-half years. The upturn was driven by the non-renewal of contracts and layoffs, and in some cases, a preference for flexible work.
Of the four English monitored regions, London recorded the strongest improvement in short-term labour availability by a notable margin.
Starting salary inflation cools for second straight month
Latest survey data pointed to another sharp rise in starting salaries offered to permanent workers across the capital. Recruiters often mentioned that the higher cost of living and shortages of specific candidates continued to push up pay. That said, the rate of inflation was among the weakest in the current run of growth that began in March 2021, and softer than the UK-wide average.
The only other monitored English region to register a softer rise in starting salaries than London during August was the South of England.
Recruiters across London signalled a marked increase in temp wages during August, thereby extending the current run of inflation to 30 months. After having eased to a 29-month low in July, the pace of increase accelerated to the fastest since October 2022. According to anecdotal evidence, greater competition for labour with specific skills contributed to the marked increase in temp pay.
Across the four monitored English regions, London saw the quickest increase in short-term pay, while the South of England reported the softest rate of wage inflation.
Commenting on the latest survey results, Anna Purchas, London Office Senior Partner at KPMG said, “Employers across the capital remain cautious about hiring, with many waiting for more positive signs on the economic outlook to boost confidence and kick start recruitment plans again.
“With the cost of living crisis continuing, and employers making targeted hires, starting salaries across both permanent and temporary placements are continuing to rise as competition to secure specific skills remains fierce. Medical and professional services specialists are amongst the most sought after skills that employers in London are struggling to recruit for on a permanent basis, whilst retail and hospitality staff are in high demand as the capital gears up for a busy Christmas. We’re also seeing a shortage of construction professionals and labourers in London.
“In order to attract, recruit and keep the highly skilled staff, London employers are facing tension between rising salaries and maintaining tight cost controls in their business.
“In general, supply and demand in the capital appears off balance as more people make themselves available for work, but fewer vacancies on offer. As we head to the end of the year, a rebalance in London’s labour market is needed to kick start growth and prompt economic recovery. More focus on reversing the deepening skills gap would be a step in the right direction in order to seize on the upturn when it comes.”
Neil Carberry, REC Chief Executive, said, “August is always a slower month for new permanent roles, but this has been exacerbated in 2023 by the lack of confidence to start the new hiring we saw among firms in the Spring. As inflation begins to drop, it is likely that firms will return to the market later in the year – employer surveys suggest confidence may be returning. But for now, the labour market has more slack than it has since the heights of the first lockdown. Firms continue to use temps to fill any short-run needs, with the moderate drop in August representing little change from the past few months.
“Recruiters routinely describe this sober overall picture as harder, but not necessarily bad. Vacancies are still in a half decent position.
“There are huge variations between sectors, too. Hospitality, Accounting and Healthcare continue to grow in demand, meaning employers are still experiencing shortages. Demand for permanent healthcare staff in London continues, and across the UK healthcare staffing demand has now risen for 37 months.
“In many of these sectors temporary staff are keeping employers going – including in the NHS, where agencies have been unfairly blamed for failures of training and procurement practice from NHS England. A focus on effective skills reform will be vital to addressing shortages overall in all the shortage sectors.
“With demand weakening, we see the drivers for rising pay being more to do with companies’ pay settlements for existing staff, rather than market demand. Those finding new jobs are benefitting from rises that many firms put in place for their teams earlier in the year. That said, data that covers the whole of the UK shows that pay pressures remain sharp for permanent workers in some sectors driven by ongoing shortages.”