Labour market grows at fastest pace in two years – report

Employment has returned to pre-pandemic levels but growth is expected to be short-lived amid rising living costs and the impact of war in Ukraine.

UK firms hired more staff in recent months and optimism increased in March, business advisory firm BDO found in a new report.

BDO’s index rose for the fifth consecutive month in March to a reading of 112.74, a 1.99 point increase compared to February. Anything above 95 is growth.

It is the fastest growth for the UK labour market since February 2020, before the pandemic struck.

Manufacturing and services companies were keen on hiring new staff, and their optimism outweighed concerns across the economy about disrupted supply chains, exacerbated by the Russian war in Ukraine.

Recent data from the Office for National Statistics showed a fall in the UK’s unemployment rate to 3.9% in the three months to January, dropping below pre-pandemic levels for the first time.

And the Resolution Foundation think tank said wage growth has been driven up by a competitive labour market as firms increase pay to attract and retain workers.

But economists fear wage growth will be offset by rising inflation and soaring energy prices, meaning workers will not feel the effects of a buoyant labour market.

Nye Cominetti, senior economist at the Resolution Foundation, said: “With inflation set to reach 8% in the coming months, most workers’ earnings will fall in real terms, further squeezing living standards in the months ahead.”

BDO also warns hiring intentions will slip in the coming months as businesses are “distracted” by financial pressures.

Kaley Crossthwaite, a partner at BDO, said: “The labour market has shown resilience throughout the pandemic and then continued growth as restrictions have gradually lifted.

“While it’s reassuring to see employment return to near pre-pandemic levels, this strong form could come to an end as the cost-of-living crisis, rising inflation and wider geopolitical matters distract businesses from growth and place pressure on the employment index.”