Companies have reported their highest employment levels since before the pandemic, underscoring the strength of the labour market even as the broader economy slows.
A monthly survey from BDO showed an eighth consecutive rise in private sector recruitment last month.
The unemployment rate has fallen to 3.8 per cent, raising concerns about labour shortages in healthcare, education and road haulage. Despite this, pay is still falling behind inflation, which is rising at the fastest pace since 1982.
Surging inflation and squeezed disposable income pushed down BDO’s wider output index to the lowest level since early 2021, when the economy was in the midst of a lockdown. The index fell to 97.73 in June, below the 100 mark that indicates long-term growth, and was driven by manufacturing and services companies suffering from disrupted supply chains and higher costs.
“Despite recent resilience, inflationary pressures and fears of a recession look to dampen the outlook for the labour market as economic activity is predicted to decline in the second half of this year,” Kaley Crossthwaite, a partner at BDO, said.
The economy is on course to contract in the three months to June. A rising tax burden, high oil and gas prices and rising inflation in goods and services will drive down growth.
Fears of a recession pushed down BDO’s business optimism index for the third month in a row. Surveys of household sentiment also have slumped amid the cost of living crisis.
Crossthwaite added that businesses faced “a perfect storm of staffing shortages, an expected increase in the energy price cap and weakened consumer spending”.
The jobs market has been hit by Brexit and the pandemic. The Bank of England estimates that the labour market is 400,000 smaller than it was before Covid-19.
Employment levels defy slowing economy