Increasing confidence in the UK is leaving employers facing a perfect storm of a wage inflation spiral during a worsening skills crisis.
There has been an increase of 70.1 points in pay confidence among the UK workforce, marking its return to positive territory for the first time since Q2 2022, according to the latest Robert Half Jobs Confidence Index (JCI).
This boost is attributed to the growth in real wages, positive for the first time since Q1 2022. Consequently, 60% of employees reported last month that they are confident about their job security for the upcoming six months.
An economic confidence tracker, produced in partnership with the Centre for Economics and Business Research (Cebr), also points to a broader context of positive consumer confidence and healthy business optimism in Q2 2023. With a reading of 30 considered high, the latest figure of 47.2 represents the highest recorded level since Q1 2022 when optimism surged as COVID-19 restrictions eased.
The current level of optimism seems poised to continue, with 41.9% of respondents to an August survey expressing confidence in their future career prospects. Additionally, Cebr has upgraded its economic growth forecast for 2023 from 0.2% to 0.4%.
Matt Weston, Senior Managing Director UK and Ireland at Robert Half, said: “The UK economy has demonstrated remarkable resilience in 2023, showing growth when a period of economic contraction was expected. However, the nation still grapples with systemic skills shortages, even as worker confidence thrives.”
Weston continued: “We are witnessing a perfect storm of unprecedented worker confidence in job security, pay, and career progression, exerting significant pressure on the labour market. Employee mobility is at an all-time high, with self-assured workers, cognisant of low unemployment rates, seeking better working conditions or higher remuneration elsewhere. This talent migration is causing businesses to grapple with the loss of valuable employees, intensifying the wage spiral we currently observe.”
Dealing with inflated salary expectations
While nominal wage growth has recently outpaced inflation, business leaders may become less willing to accommodate higher pay expectations in the future. However, the elevated worker confidence could lead many to consider leaving if they feel their earning potential is not being met. To address this challenge, non-financial and retention strategies focused on improving employee satisfaction could help prevent further wage inflation and enable businesses to retain their talent pool.
ICAEW’s Economies Director Suren Thiru said: “Inflation’s current downward trajectory should gather momentum over the autumn as falling energy bills, a weakening economy and the lagged impact of interest rate rises pushes the headline rate noticeably lower.
“The downward pressure from a cooling jobs market, a deteriorating economic outlook and lower inflation expectations should soon put wages on a notably downward trajectory.”
Despite the anticipated decline in job vacancies, the Index suggests that levels will remain above pre-pandemic norms for the remainder of the year and will likely stabilise at around 925,000. The report suggests that the tight labour market, defined by a war for talent, appears to be far from over.
The challenges are abundant, but so are the opportunities, and employers must seize this moment to navigate the evolving landscape effectively.
Thiru added: “Rising unemployment and falling job vacancies suggests the UK’s jobs market has come off the boil, reflecting the lagged impact of rising interest rates and a floundering economy starting to put firms off from attempting to recruit, despite still facing chronic staff shortages.
“There are still good reasons to believe that inflation and wages will fall back over the rest of the year as rising unemployment and tighter monetary policy help choke off demand in the economy.”
- Read ICAEW’s series on how accountants can build a more resilient economic future
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