Business

Rising hiring expectations and wage pressures add to case for rate hike

Employers' near-term employment expectations have risen to a five-year high, according to new research, highlighting a growth in demand for workers and hinting at further tightening of the labour market.

There are tentative signs that wage pressures are increasing, according to the latest Labour Market Outlook from the Chartered Institute of Personnel and Development (CIPD) and The Adecco Group, as mean average basic pay growth expectations have risen from 1.8 per cent to 2.1 per cent over the last quarter.

This could act as a catalyst for the Bank of England's monetary policy committee to hike interest rates in June rather than the more widely anticipated August date, after it held off last week due to poor economic performance in the first quarter.

Read more: The City reacts to sharp GDP growth slowdown: "All but ended any hopes for May rate rise"

“Employer optimism about job prospects remains extremely positive, which suggests we should be cautious about putting too pessimistic an interpretation on the weak provisional GDP figures released last month," said CIPD's Gerwyn Davies.

"However, 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.

"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.

The CIPD warned that employers demand for skills and labour may not be met by supply, since the number of vacancies in the UK economy remains "well above" historic average levels.

Read more: Unemployment fell to 1.44m between September and November last year

The study comes as the Office for National Statistics is set to release the latest data on unemployment and wage growth tomorrow.

Wage growth finally outpaced inflation in February, at 2.8 per cent versus 2.7 per cent, as employment reached its highest level since records began in 1971.

The Bank of England will be watching closely for signs of further pay growth, as it seeks to return interest rates to a more "normal" level.

Read more: Poor weather puts a dampener on Bank of England rate hike as policymakers adopt wait and see approach for economic growth

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