UK hiring hits fastest rate in 23 years as services boost growth hopes

UK companies hired permanent staff at the fastest pace for 23 years in May, according to a widely watched survey, adding to signs that the UK economy is bouncing back more strongly than economists expected.

The easing of Covid-19 restrictions in Britain and reopening of more sectors of the economy boosted the KPMG and Recruitment & Employment Confederation permanent placement index to 67.4, a sharp increase on the 50 recorded in April.

With the number of people furloughed also falling by a third between January and the end of April, Claire Warnes, partner at KPMG, said the latest data suggested that the jobs market was “firing on all cylinders”.

The results set the scene for “an eye-popping rate” of UK GDP growth in the second quarter of 2021, added Tim Moore, IHS Markit economics director.

The survey suggested warning signs of labour shortages in some sectors, with the job vacancies index accelerating at its fastest rate since 1998 and staff availability falling at its fastest pace for four years.

Demand for permanent workers climbed across all categories, led by IT and the hotel and catering sectors, while vacancies in the retail sector lagged behind. Temporary billings also rose rapidly, expanding at their quickest rate for more than six years.

Kate Shoesmith, deputy chief executive of the REC, warned that labour shortages had “the potential to slow down the recovery” and called on the government to “urgently look at improving access to work”.

Greater demand for workers and a generally low supply of candidates pushed up wage rates in May, with the related index rising at its fastest rate since September 2018.

The REC findings were published after the closely followed IHS Markit purchasing manager index for UK services rose to 62.9 in May, surpassing estimates of 61.8 and signalling the fastest rise in business activity since May 1997.

The PMI data also pointed to mounting inflationary pressure, as labour shortages bumped against rising consumer demand. The PMI output price index for the service sector surged in May, signalling the fastest rate of inflation since the survey began in July 1996.

Matthew Ryan, senior analyst at the financial company Ebury, said “macroeconomic data out of the UK has been resoundingly positive of late, and today’s data merely provides further evidence of that”.

He added that “given the strength of the latest data . . . we see it as likely that the Bank of England will begin normalising policy sooner than both the European Central Bank and perhaps even the Federal Reserve”.

Further signs of a strong UK economic recovery came from consumer spending, which was up 8 per cent in the week ending May 30 compared with the same week in 2019, according to data company Fable Data.

Nearly 60 per cent of businesses reported that their turnover had either stayed the same or increased compared with normal levels over the same period, the highest proportion since estimates began a year ago, ONS data showed.

The proportion of the business workforce on furlough also fell to 8 per cent in the two weeks to May 30, its lowest since October 2020.

Dan Tomlinson, senior economist at the Resolution Foundation think-tank, said the continued fall in furlough rates “is an encouraging indicator that the labour market, as well as the wider economy, is recovering quickly”.