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Pressure on wages as businesses struggle to recruit

14 May 2018

Pressure on wages as businesses struggle to recruitEmployers are finding it increasingly difficult to access the skills and labour they need, according to new data.

The latest quarterly Labour Market Outlook from HR body the CIPD and The Adecco Group shows that employers' near-term employment expectations have risen to a five-year high.

However, the continued growth in demand for labour is bringing with it signs that wage pressures are increasing. Median basic pay award expectations for the next 12 months remain unchanged at 2%, but average (mean) basic pay expectations have risen from 1.8% to 2.1% over the last quarter.

The survey of more than 1,000 employers suggests there will be strong growth in the demand for labour in the second quarter of 2018. During the past three months, the net employment balance - a measure of the difference between the proportion of employers who expect to increase staff levels and those who expect to decrease staff levels in Q2 2018 - increased from +16 to +26.

However, while employment growth intentions are strong, the number of vacancies in the UK economy remain well above historic average levels. The CIPD is warning that employers' demand for skills and labour may not be met by supply.

"Employers looking to expand their workforces are likely to face growing headwinds as organisations find it more difficult to source the people and skills they need," said Gerwyn Davies, senior labour market analyst for the CIPD. "This may explain why wage pressures are starting to increase following a prolonged period of relatively subdued pay growth. It could well be that employers are using higher starting salaries to attract the talent they need."

Almost two-thirds (61%) of employers said that at least some of their vacancies are proving hard to fill. More than a quarter (28%) said that they are raising wages to tackle their recruitment difficulties.

"Employers need to think more creatively about their workforce planning and talent pipelines to ensure that they can continue to access and develop key skills," said Davies. "There needs to be a mix of attracting new and diverse talent as well as upskilling existing staff. In particular, organisations must put much more effort into attracting and retaining older workers, women returning to work after having children and other disadvantaged groups in the labour market, as well as investing in training and developing their existing workers."

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