Steady summer in the jobs market but interest rate hikes yet to fully bite

The latest quarterly CIPD/KPMG Labour Market Outlook (LMO) Survey, published today 13 August, finds that the proportion of employers expecting to hire additional staff this summer is unchanged from the spring.

However, although this suggests that the impact of recent interest rate hikes on the demand for labour has yet to be felt there are signs that employers are becoming more pessimistic.

Net recruitment intentions are the weakest in any summer quarter since the LMO survey began and the balance of employers who expect to be employing more staff in a yearís time over those expecting to employ fewer has fallen from 22% to 19% since the spring.

The CIPDís Chief Economist Dr John Philpott comments:

ìThe labour market is having a steady summer, with levels of likely recruitment activity similar to those seen earlier in the year and the pay outlook still benign, which will be good news for the Monetary Policy Committee. But with recruitment intentions weaker than in the past few summers, and the effects of recent interest hikes still to be fully felt, job prospects look set to soften, though judging by the experience of the past decade the chances are that most employers will respond to slower demand by cutting back on recruitment rather than increasing redundancies.î

Andrew Smith, KPMGís Chief Economist comments:

ìThe MPCís latest Inflation Report suggests that to meet the inflation target a period of slower growth will be necessary ñ probably entailing at least one more interest rate hike. However, with growth projected to stabilise around its trend rate, any weakening of the labour market should not be too severe.î

Recruitment and redundancy outlook

Eighty-six per cent of employers responding to the latest Labour Market Outlook survey intend to recruit staff this summer, a similar proportion to that recorded in the spring survey (85%).

Thirty-eight per cent of employers surveyed intend to recruit additional staff this quarter (again, almost identical to the spring survey figure of 39%). Net recruitment intentions are strongest in private sector services (where 52% of employers intend to recruit additional staff) and lowest in public services (18%).

Forty-nine per cent of employers surveyed anticipate recruitment difficulties this quarter (compared with 48% in the spring quarter).

The proportion of employers intending to make some staff redundant has fallen from 25% to 20% since the spring survey. In 41% of cases, ten or more employees will be made redundant.

Pay outlook

Twenty-three per cent of employers surveyed plan to conduct a pay review in the summer quarter. Thirty per cent conducting a review expect the pay of their staff to increase on average by 3ñ3.5%.

Pay expectations appear to have moderated slightly since the spring survey, with 20% of employers expecting pay to rise by 4% or more this summer, compared with 23% in the spring. However, the median expected increase of 3% is unchanged from the spring quarter, while 14% of employers, compared with only 1% in the spring quarter, didn't state an expectation in this quarter's survey.

Medium-term employment outlook

Forty-seven per cent of employers surveyed expect their staff numbers to be about the same by summer 2008. More than a third (36%) expect to be employing more staff, but 17% expect to be employing fewer.

There is a 19% positive balance of employers expecting to employ more staff over those expecting to employ fewer in a year's time ñ down from the 22% positive balance recorded in the spring. The positive balance is strongest in private sector services (43%), followed by the voluntary/not-for-profit sector (36%) and manufacturing (24%). The public services again record a significant negative balance, unchanged from the spring survey at ñ20%.