UK employment report shows pool of candidates shrinking and pay rising in November

Recrtuiters are finding it harder and harder to fill vacancies because of dwindling pool of talent according to a recent jobs report.

However the data may not be enough to dislodge ingrained pessimism about the state of the U.K economy and draw nearer the time when the Bank of England raises interest rates.

The report signalled that the number of staff placed in permanent roles gained the highest since April.

Agency, contract and temporary staff also rose to their highest for 5-months.

The report’s main points were as follows:

“Permanent placements rose at fastest rate in 7-months, candidate availability tightened further and pay growth remained marked.”

Lack of suitable candidates forcing up pay

Significantly, ashrinking pool of available candidates and skills shortage was having a positive contribution on pay:

“A lack of suitable candidates had the effect of driving salaries higher, with recruiters signalling a further marked increase in permanent staff pay and the fastest rise in temporary/contract staff hourly rates for three months.”

The report suggested current conditions would pre-empt a sharper, broader rise in remuneration:

“Historical comparisons suggest that average earnings growth could rise from its current level of 3.0% per annum (including bonuses) in coming months, particularly if rates of job churn across the broader labour force pick up and if composition effects which have held down earnings in recent months unwind. With the unemployment rate now standing at a 7-year low of 5.3% the labour market is looking increasingly tight.”

Risk expert not convinced

The positive outlook outlined in the report, however, was not enough to warrant a material change in expectations of when the BOE would likely raise interest rates, according to AFEX’s currency risk consultant Lucy Lillicrap, who clung to her view – endorsed by market-based indicators – that the BOE would probably wait until 2017 before raising rates:

“Although the report does point to a strengthening of the UK’ s labour market in November it should be considered against the current backdrop of data from the UK economy which were not particularly sparkling for last month.”

Referring to the recent string of poor U.K PMI data including below-expectation Construction and Manufacturing PMI for November, Lillicrap added:

“Manufacturing and construction PMI were below expectations and retail sales were surprisingly down 0.6% MoM. Indeed, CPI was -0.1% y/y and even though core CPI y/y (CPI excluding food and energy) was 1.10 % the recent push below $40 per barrel for WTI will reduce inflationary pressures again.”

Overall she dismissed the view that the data might represent a new-dawn of higher wages and higher inflation, which might influence the BOE's pace of tightening:

“When deciding the course of UK interest rates the MPC’s primary target is to maintain inflation at 2% 2 years out which last month’s inflation report suggested was still some way off. So all in all while the employment survey was positive news it will probably not be enough on its own to change the current thinking at the MPC on when to raise rates with the markets still not fully pricing in the first UK rate rise until early 2017.”