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Labour market operating close to full capacity but challenges lie ahead

Gerwyn Davies

Commenting on the latest official labour market statistics released by the Office for National Statistics. Contributor Gerwyn Davies, Senior Labour Market Analyst – CIPD.

Record high employment, record low economic inactivity and a further increase to regular earnings all point to a labour market that is in rude health. However, beneath the surface, the data indicate that the UK labour market looks set to tighten further, which will heap further pressure on the increasing share of employers who are struggling to raise wages.

The disappointing productivity figures will undoubtedly raise questions about the sustainability of wages to rise beyond the immediate-term. Regular pay has edged up slightly, suggesting that skill and labour shortages are starting to put pressure on employers to raise wages. However, the combination of strong jobs growth and weaker economic growth means that the productivity revival is in danger of fizzling out yet again, which may dampen wage growth in the months to come.

Employers need to be better prepared for a changing and tighter labour market. Labour supply looks set to fall further in the coming months, partly due to an abrupt plateauing in the number of EU citizens in employment in the UK, as this morning’s figures show. Greater investment in skills is needed to offset recruitment difficulties and increase productivity growth alongside more workforce planning activity.

Meanwhile, the Government has to do more to kick-start our productivity growth, for example, by providing better support to small firms and by reforming the apprenticeship levy to a more flexible training levy that can start to boost organisations’ investment in skills.”

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