Hiring falls at fastest pace in three years as interest rates soar

Hiring is falling at the fastest pace in more than three years in a sign that soaring interest rates are starting to cool down the jobs market.

Employers are feeling increasingly cautious about taking on new staff and many have hiring freezes in place, recruiters reported, according to a closely watched survey by accountancy giant KPMG and industry body the Recruitment & Employment Confederation (REC).

Temporary staff hires also fell for the first time since July 2020, adding to growing evidence of a slowdown in the labour market.

The labour market has held up remarkably well in the face of the fastest round of interest rate rises since the 1980s, with unemployment close to historical lows.

But the latest data show that higher borrowing costs are slowly starting to reverse the power balance between workers and employers. 

The number of candidates grew for the sixth consecutive month, with the number of people looking for temporary and permanent roles rising sharply.

Employers and recruiters said the rising numbers reflected a rise in redundancies and a slower job market.

Those finding themselves in the market for a new role will find that they have less choice than previously, with vacancies falling for the sixth straight month in August.

While starting salaries were still rising rapidly last month amid higher living cost pressures and competition for candidates, pay growth was far slower than a year ago.

Neil Carberry, chief executive at REC, 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.”

In another indication that inflation is on the way down, bosses reported the lowest expectations for how much they will raise prices since the Bank of England began raising interest rates nearly two years ago.

Businesses expect to raise their prices by 4.4pc over the next year.

This is the smallest expected increase since November 2021, the month before the Bank of England began raising interest rates.

Bosses on the Bank of England’s Decision Maker Panel reported the sharpest monthly drop in expected inflation since the survey began in 2017.

Expected wage growth remained the same at 5pc in August for this time next year, while the three-month moving average decreased slightly by 0.1 percentage points to 5.1pc.

This is lower than realised wage growth, which was at 6.9pc in both the single month data and the three months to August.

It comes as the Governor of the Bank of England, Andrew Bailey, suggested that interest rates may be nearing their peak as he gave evidence to MPs on Wednesday.

The Bank of England has raised interest rates 14 times in a row since December 2021, lifting the base rate from 0.1pc to 5.25pc.