Starting salary inflation softens to 34-month low in January

Jo Thompson Recruitment contributes to the Report on Jobs, a comprehensive guide on the UK labour market that is drafted by KPMG and the Recruitment & Employment Confederation (REC), compiled by IHS Markit. The monthly report is built upon survey data from recruitment consultancies and employers, who share insights on the latest and most pressing labour market trends for the UK.

In the latest UK Report on Jobs, the REC, KPMG, and IHS Markit recorded that starting salary growth eases amid further rise in staff supply. Sustained and sharp drop in permanent placements, while temp billings fall slightly.

Commenting on the latest survey results, Jon Holt, Chief Executive and Senior Partner of KPMG in the UK, said:

“We’re starting the year with the labour market remaining tight overall, though we are seeing the number of job seekers increasing as demand softens.

“The skills gap is part of this story. We know the UK’s ambition is for technology to drive productivity and economic growth, and yet we still face a shortfall in skilled tech talent. If the UK is serious about equipping the workforce for a modern digital economy, we need Government and business working together and investing in reskilling and upskilling.

“All eyes will now be on the Chancellor’s upcoming Budget, and while recruiters and businesses would no doubt welcome any further cuts in payroll tax costs, they will also be hoping for a bit of policy stability during an election year.”

Neil Carberry, REC Chief Executive, said:

“The labour market’s resilience is a great strength of the British economy – but it can’t last for ever without sustained economic growth. Pay has normalised, inflation is dropping and the hiring market has been cooling for a year now – it’s high time that the Bank of England starts releasing the brake pedal on our economy.

“The Chancellor has the perfect opportunity in the Spring Budget to give some clear signals on growth. A long-term plan to tackle skills and labour shortages, economic inactivity and weak productivity is essential. A Spring Budget full of practical steps on skills, welfare to work and the cost of doing business will help hugely.

“We can get the wheels of investment turning by recognising that the people stuff matters as much as capital expenditure. Investment in new industries and technologies such as green skills and AI is great and necessary, but we must get more of firms thinking about how they organise work, and how to build new skills to fuel local economies across the UK.”

Executive Summary

The Report on Jobs is unique in providing the most comprehensive guide to the UK labour market, drawing on original survey data provided by recruitment consultancies and employers to provide the first indication each month of labour market trends.

The main findings for January are:

Uncertainty over the outlook continues to constrain hiring

The latest survey of recruitment agencies across the UK revealed a further drop in hiring activity at the start of 2024, particularly for permanent workers. Notably, permanent staff appointments fell at a sharp and accelerated pace, while temp billings fell only slightly. There were frequent reports that businesses had often paused recruitment plans due to the subdued economic environment, while fewer vacancies also dampened staff placements.

Overall demand for workers falls for third month running

Total vacancies across the UK declined again during January, albeit marginally. Demand for staff has now weakened in four of the past five months, driven by a sustained reduction in permanent job opportunities. Meanwhile, temp vacancies expanded at the slowest rate since November 2020 and only slightly.

Permanent salary inflation slips to 34-month low…

Although starting salary inflation remained sharp in January, the latest increase in pay was the softest recorded since March 2021 and slower than the series average. Temp wage growth quickened slightly to a five-month high, but was also below the historical trend. According to recruiters, competition for suitably-skilled staff amid a strong inflationary environment continued to push pay rates higher. However, there were also reports that pressure on client budgets had limited overall increases in pay.

…as supply of candidates continues to increase

UK recruiters registered a further sharp increase in overall candidate availability at the start of the year. This was despite the rate of growth easing to a four-month low. Permanent staff supply continued to rise at a slightly quicker pace than that seen for short-term workers, but both saw upturns ease since December. There were frequent reports that redundancies and a slowdown in recruitment activity had increased the pool of available workers.

Focus on the South of England – Permanent staff recruitment declines at quicker pace in January

In the latest UK Report on Jobs, the REC, KPMG, and IHS Markit recorded that permanent placements fall sharply, but temp billings rise. Starting salaries and wages both increase at quicker rates and the supply of labour continues to expand as vacancies fall.

Commenting on the latest survey results, Emma Gibson, Senior Office Partner at KPMG in Reading said:

“It was a muted start to the year for the region’s job market. January’s data showed a further decline in the availability of permanent roles with more businesses pausing hiring due to ongoing economic headwinds.

“Temporary billings increased, offering a glimmer of hope for the months ahead. Evidently the gig economy is growing in the region – giving people the opportunity to work more flexibly, for more money, whilst allowing businesses to staff essential short term projects. Although the labour market remains tough in some areas, the skills gap will continue to push higher rates of pay to attract top talent.

“Like other regions, the South is facing its own economic challenges but there are positive indicators in the temporary staffing sector which will continue to drive productivity. Employers and job seekers who adapt to the changing market dynamics will be well positioned to take advantage of new opportunities.”

Sharper reduction in permanent staff appointments

Subdued demand for permanent staff amid uncertainty around the economic outlook weighed on permanent placements across the South of England at the start of 2024.

The number of people placed into permanent roles has now declined in each of the past ten months. The latest reduction was historically sharp, having quickened from that seen in December, and outpaced the UK-wide trend.

Furthermore, the only monitored English area to register a quicker fall in permanent placements than that seen in the South of England was the Midlands.

Fresh and solid increase in temp billings

After falling in the final two months of 2023, billings received from the employment of temp staff in the South of England increased during January. Notably, the respective seasonally adjusted index pointed to a solid rate of growth that was the best seen since last May. A number of recruiters mentioned that a preference among employers for short term staff and new projects had supported the fresh rise in billings.

Across the UK as a whole, temp billings fell for the third straight month, albeit only slightly.

Permanent labour supply rises at softer, but still sharp rate

The availability of permanent staff in the South of England increased for the eleventh month running in January. The rate of growth remained historically sharp, despite easing further from November’s recent peak to a four-month low. Recruiters often mentioned that redundancies and fewer work opportunities had pushed up permanent labour supply. At the UK level, permanent candidate numbers rose at a slightly quicker pace than seen in the South of England.

Temp candidate numbers expand at softest rate in six months

Temporary candidate availability increased again in January, though the rate of expansion softened from December. Whilst sharp, the latest upturn was the least pronounced in six months. Panel members widely commented that a slowdown in hiring activity and company layoffs had pushed up candidate numbers.

Of the four English regions monitored by the survey, only London recorded a quicker increase in temp staff supply in January.

Special Feature

This section features data from the Recruitment and Employment Confederation

Struggles with childcare funding and staff are an all-too typical problem in the UK today.

As Coram Family and Childcare Trust begins work on its 23rd annual Childcare Survey, its last such survey published in March revealed a sharp drop in childcare availability across England during the past year, with only half of local areas reporting sufficient childcare provision for children under two years old, a decrease of 7% on 2022, and under half (48%) reporting enough childcare for parents working full-time, a decrease of 11% on last year.

With the government’s £4bn scheme, announced in the last Spring Budget, starting this April , there are concerns about its feasibility and whether nurseries have the money and staffing capacity to adequately achieve the pledges made by ministers.

With National Apprenticeships Week this month, can reform of apprenticeships help widen childcare


Ofsted has flagged that the number of new apprentices starting in the early years sector has fallen by 40% in six years. The decline is happening as demand for childcare is likely to increase by around 15%. This is the equivalent of 100,000 additional children in full-time care.

As demand for childcare increases, so do resignations – with more than half of nursery staff having considered quitting, further adding to the issue for nurseries, who are struggling to maintain existing provision without nearly 50,000 new staff.

This lends weight to REC’s view that temporary workers should be eligible for apprenticeship levy funding when today they are excluded because only 2% of assignments last longer than 12 months.

Apprenticeships need to work better for businesses. Within the childcare sector, there are serious talent shortages. A solution to this would be creating a talent pipeline in the form of nursery practitioner apprenticeships that would recognise and address the 40,000 new staff and upskill individuals.

There are nearly 1 million temporary workers in the UK and without expanding the levy to make it easier for them to access training the labour market as a whole will miss out on the value of their contribution.

After all, in its annual report, Ofsted acknowledged that early years apprenticeships may provide a way to raise the quality and size of the early years workforce.

The need for reform for apprenticeships therefore is urgent.

Adequate provision of early years education has wide ranging benefits, not only for parents and children but for the economy more widely. Pregnant then Screwed, a campaigning charity supporting pregnant women and parents who encounter pregnancy, paternity or maternity discrimination, has recently found that one in five parents earning less than £50,000 are leaving the workforce due to the cost of childcare.

There is clearly a need to improve the provision of childcare to help both parents and childcare professionals into the workforce. This will also help fill the high vacancy levels in the labour market driven by skills and worker shortages.

Wider revisions of the early years apprenticeship scheme make for a compelling development. From April 2024, the funding band for the level 3 early years educator apprenticeship will increase from £6,000 to £7,000. More broadly, the Secretary of State for Education has also committed to increasing investment in apprenticeships to £2.7bn by 2024/25.

Businesses, particularly those in early education, should be positioned to proceed into this year with strength and confidence. The lack of childcare workers will dampen that. The REC’s recent Jobs Outlook has found that businesses’ mood about their own prospects continues to improve, as does their confidence in making hiring decisions. In the upcoming budget, the chancellor can fuel this optimism by improving access to skills and workers through Apprenticeship Levy reform.

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