However, according to larger accounting firms there is some evidence that there may be some loosening in the coming months.
BCC head of people policy, Jane Gratton, said businesses are facing a “ticking time bomb” and has called on the government to initiate an “Immediate review and reform of the Shortage Occupations List (SOL) to include more jobs at all skill levels”.
“The Government can help ease the growing pressure in the labour market at no extra cost to the Exchequer,” she said.
“We need an immediate review and reform of the Shortage Occupations List (SOL) to include more jobs at all skill levels. This will give firms breathing space to train and upskill their workforce. We have over a million more job vacancies than people available to work, so the sooner we start the SOL review, the better.
“[Today’s] figures show little improvement for employers over the last quarter. Despite the small increase in employment levels, the number of job vacancies in the economy remains around the highest on record. Competition for skills and labour continues to drive up wage costs.
“Skills and labour shortages have reached crisis point for many firms. The impact is being felt on their ability to meet customer demand and forcing some to turn away new business, because they simply do not have the human resource. This is restricting growth and business confidence. It’s a serious and urgent problem.
“On top of all of this, firms are now grappling with the highest inflation in almost 40 years; the largest spike in interest rates in three decades; ongoing supply chain disruption; and eye watering energy bills. There is a limit to how much additional cost business can absorb.”
Ms Grattan said the government also needs to encourage economically inactive people back into the UK labour market through access to publicly funded rapid retraining opportunities.
“Businesses must be part of the solution too by creating the right workplace conditions, for example by providing flexible working practises, training opportunities and a focus on workplace healthcare and support,” she said.
However, according to EY ITEM Club chief economic adviser, Martin Beck, there is some light at the end of the tunnel.
He said the continued strength in the labour market remains one key positive.
“The jobless rate was at a near-50-year low in Q2 and job vacancies close to a historic high. But movements in both suggest the labour market is becoming a little less tight,” he said.
“Statistical irregularities were the main reason behind a deceleration in pay growth in the latest data. On an underlying basis, the earnings numbers don’t yet validate the Bank of England’s concerns of a potential wage-price spiral. Real pay has continued to fall, although, on the upside, this is expected to help to preserve jobs as the economy slows.”
Mr Beck said the labour market continued to display resilience over the summer, albeit with signs that a weaker economy is loosening things up a little.
“The Labour Force Survey (LFS) jobless rate of 3.8 per cent in Q2 was 0.1ppt higher than in the first quarter, but still lower than the immediate pre-Covid rate. Employment rose 160,000, but this did not prevent the employment rate falling 0.1ppt to 75.5 per cent. Inactivity was broadly unchanged. Meanwhile, job vacancies fell for the first time since the summer of 2020, although they were still close to a record high,” he said.
“The average worker continuing to see their pay fall in real terms is at odds with concerns about the possibility of a wage-price spiral in the UK. And while falling real pay will have an impact on consumer demand, labour getting cheaper relative to prices and the cost of some other inputs should protect employment from the negative effects of a weaker economy.”
Yael Selfin, chief economist at KPMG UK, agreed and said the labour market could ease further as the economy weakens.
“As a myriad of headwinds hit the economy later this year, we expect the labour market to loosen from current levels. This will weaken the bargaining power of employees, while a more forceful response from the Bank of England to tame inflation should also help lessen pay demands,” he said.
“Nominal growth in regular pay continued to be dwarfed by inflation in June, leading to further erosion in households’ purchasing power. The bad news for employees is that real pay growth is unlikely to return to positive figures for some time.
“As economic growth weakens, lower customer demand should put less pressure on employers to recruit new staff. Nevertheless, our forecast envisages the unemployment rate could peak at 5.4 per cent in 2024, a relatively low level by historical standards.”
Jake Finney, economist at PwC, added that inflation could see real household incomes fall for two consecutive years.
“The pay data also showed the widening gulf between public and private sector pay; private sector pay grew by 5.9 per cent over the past year, more than three times higher than public sector pay growth at 1.8 per cent,” he said.
“At the same time, the richest 1 per cent of workers have seen their pay packets increase at a rate almost four times higher than the lowest 10 per cent of earners, with their monthly pay increasing by 7.1 per cent in the year to June, compared to 1.9 per cent growth for the lowest 10 per cent of earners.
“There is evidence that the cost of living crisis is starting to lower demand for workers, as vacancies fell by 19,800 on the quarter for the first time since July to September 2020. This will ease pressure on the Bank of England to deliver another 50 basis points hike to interest rates next month. However, there is little evidence so far that the economic slowdown is leading to a sharp rise in unemployment, with the unemployment rate only increasing by 0.1ppts in the quarter to 3.8 per cent.
“Though hiring efforts are slowing, we expect the unemployment rate to remain relatively stable for the rest of this year. In the face of labour shortages, UK firms are more likely to hoard than shed labour. One in three firms still report a shortage of workers, and most say they would like to expand their headcount by more than they did last year.”
