UK salaries rise as firms face growing candidate shortages

Bloomberg

Fierce competition for workers pushed UK salaries higher in April, according to a survey that will put pressure on the Bank of England (BOE) to continue tightening monetary policy in its battle to tame inflation.
As candidate availability declined for the 14th straight month, starting-salary inflation held close to a record high, the Recruitment and Employment Confederation and KPMG said.
The scarcity was driven by low unemployment, fewer foreign workers and a hesitancy to change jobs due to the pandemic and geopolitical uncertainty triggered by the war in Ukraine, recruiters said.
The figures come a week after the BOE raised interest rates to a 13-year high as officials expressed concern that rampant inflation could take root if workers pressed for pay increases to match.
Despite the upward pressures, wages are still trailing far behind inflation, leaving Britons facing one of the worst periods on record for living standards.
“The labour market has been tightening for months on end, driving near-record growth in starting salaries for new staff,” said Neil Carberry, chief executive of the REC. “With vacancy numbers historically high, this is a great time to be looking for a job — and a pay rise to help meet the rising cost of living.”

UK economy shrinks
The UK economy unexpectedly contracted in March as the cost of living squeeze forced consumers to cut back on spending, throwing doubt on the BOE’s ability to keep hiking interest rates and piling pressure on Boris Johnson’s government to respond.
Gross domestic product falls 0.1% from February, when growth was flat, the Office for National Statistics said on Thursday. It meant the economy expanded just 0.8% in the first quarter, less than the 1% forecast by economists.
While the quarterly growth takes output back above its pre-pandemic level for the first time, it’s almost certain to mark the high point of the year, with the worst bout of inflation since the 1980s expected to see the economy rapidly lose momentum and possibly slide into recession.
The government is facing calls to provide more support for households amid warnings that another quarter of a million people will slide into destitution due to soaring energy and food costs. UK Chancellor of the Exchequer Rishi Sunak is reported to be preparing a package of measures for the winter, which may be unveiled this summer.
Responding to the GDP figures, Sunak said he recognised households were facing “anxious times,” even though growth in the first few months of the year outpaced the US, Germany and Italy.
The impact of the UK cost shock was evident in the GDP breakdown. In March alone, consumer-facing services dropped 1.8%, driven by a sharp 2.8% fall in wholesale and retail trade. The services sector and manufacturing both saw output shrink 0.2%.
The British Chambers of Commerce responded with another call for an emergency budget to deal with the living standards crisis.
“Markedly slower growth confirms an alarming loss of momentum,” said Suren Thiru, BCC head of economics. “Against this backdrop, the Bank of England’s recent decision to raise interest rates continues to look like a misstep.”
The Resolution Foundation think tank said “the risk of stagflation looms.” Capital Economics warned that “the risk of recession is rising.”
The March GDP reading was also affected by the winding down of the NHS Test and Trace and vaccination programs, which knocked 0.2 percentage points off growth, as activity slowed from levels seen in the Omicron outbreak.
The total trade in goods and services deficit, excluding precious metals, widened by £14.9 billion to £25.2 billion, the largest deficit since records began in 1997.
Exports fall and there was a big rise in imports, meaning net trade acted as a significant drag on growth
Business investment fell by 0.5% and remains 9.1% below its pre-coronavirus pandemic levels. The level is lower than the Bank of England forecast last week.
Bloomberg Economics expects the economy to contract in the second quarter after households were hit by a surge in energy bills and a tax increase in April. An extra public holiday will also hit output.
Further pain looms in October, when the Bank of England expects utilities to increase gas and electricity bills by a further 40%.
The central bank last week forecast inflation would exceed 10% in October, five times its target, and policy makers are in the midst of one of their fastest ever tightening cycles to bring price gains under control.
Still, that spells bad news for future growth, with the BOE predicting the economy will barely expand at all across 2023 and 2024.