Skills shortages raise inflation fears

Sep 08 2004 by Brian Amble Print This Article

Buoyant growth in demand for staff in the UK is accentuating skills shortages and pushing up wages, leading to fears about inflationary pressures on the economy.

The latest Report on Jobs from the Recruitment and Employment Confederation (REC) and Deloitte and Touche indicated that recruitment consultancies’ permanent placements and temporary staff billings both rose strongly again in August.

Permanent staff placements rose for the 15th month in a row , while the growth in demand for staff rose sharply to its strongest level for three-and-a-half years.

But at the same time, skill shortages amongst available candidates were again reported to have widened, and this resulted in increased pay rates for those people placed in new jobs.

The Report found that the overall availability of candidates to fill vacancies fell substantially during August -the tenth successive monthly fall – and that the rate of deterioration was accelerating.

Brett Walsh, Deloitte's European head of human capital, said: "The UK recruitment market expanded strongly again in August, with consultancies placing an increased number of candidates in new jobs as demand for staff showed the strongest rise since January 2001.

“Employers are pushing ahead with strategies to increase headcount following sustained economic growth. In order to attract the right candidates, employers are offering substantially higher pay rates and this emphasises the importance of retaining existing talent."

But with salaries on the rise, there are fears that growing wage inflation could jeopardise the government’s inflation targets.

According to Gareth Osborne, REC managing director, “The impact of skills shortages on wage inflation could be worrying for the economy and leads us to remain cautious in our forecasts for the labour market as interest rate rises hit home."