Are the UK’s labour markets returning to normal?

The Covid lockdowns threw the UK’s labour market into turmoil. After all, as economic activity ground to a halt and businesses pulled down the shutters, it was only natural for hiring to plunge and unemployment to soar.

In the immediate aftermath of Covid, though, everything changed. The ‘Great Resignation’ and resurgent economic activity saw more businesses hiring – and therefore having to compete for talent like never before. Wages rose amid greater inflation and as employers fought to secure those much-needed skilled workers.

But now, nearly 18 months on from the withdrawal of the last Covid restrictions, things seem to be settling down again in the labour markets. Unemployment, having dipped below the average over the past 12 months, is returning to its pre-pandemic level. And according to the latest data from the Office for National Statistics, there’s a similar reversion to the mean to be seen when it comes to vacancies.

So, where does this leave employers? Will recruitment be getting any easier? And are there any signs of wage growth calming down any time soon?

Of course, there’s more to the picture than people simply being in or out of work. The UK also has a well-documented problem with long-term sickness, and it’s likely that this form of economic inactivity is also weighing on the labour market.

The outlook, however, is looking broadly steady, according to the Chartered Institute of Personnel and Development’s latest survey. Almost three-quarters (73%) of UK employers plan to recruit in the next three months, compared with the 19% expecting to make redundancies. And even though the proportion of employers intending to increase their total staff level has been trending lower, there’s no evidence to suggest that employers are on edge about the need to make sudden changes to their recruitment plans.

It’s worth remembering, though, that recruitment isn’t always plain sailing. As many as 44% of UK employers describe themselves as having vacancies which are proving hard to fill. It’s a problem which is contributing to some of the wage rises and skills gaps in certain key industries.

Indeed, the other main factor worrying many employers right now is the upwards pressure on their wage bills. Not only has the increase in the National Minimum Wage hit some employers recently, but the cost-of-living crisis, public-sector wage rows and the ongoing trend for counteroffers have all conspired to make matters worse.

The trend on wages is clearly upwards then, and there’s no signs of that changing any time soon. According to the CIPD, the median employer now expects to have to increase wages by 5% – a figure which has remained constant for three consecutive quarters.

All told, businesses should be encouraged by the fact that vacancies and unemployment are now running at familiar levels, especially after three years of disruption in the labour markets. But ongoing issues including rising wages and hard-to-fill vacancies are bound to temper any enthusiasm.