Hiring activity in the UK saw an increase in May but there were signs of a further slowdown in overall growth, according to the latest Report on Jobs from the Recruitment and Employment Confederation and KPMG.

Notably, permanent staff appointments expanded at the softest rate since March 2021, while temp billings increased at the weakest pace in 15 months. Recruiters often mentioned that candidate shortages had weighed on placements.

London registered the strongest increase in permanent placements of all four monitored English regions, while the softest was seen in the South of England.

All four monitored English regions registered softer rises in temp billings in May except the North of England, which saw the strongest overall rise.

At the same time, overall candidate supply deteriorated sharply in May. This was despite the rate of reduction easing to the softest in four months. Underlying data indicated that permanent candidates continued to decline at a faster pace than that seen for temporary workers. Furthermore, the latest reduction in short-term staff supply was the least severe for just over a year. Panel members often mentioned that greater caution around the outlook, widespread skills shortages and fewer foreign workers had weighed on staff availability.

The Report on Jobs also noted that demand for staff continued to rise at a historically sharp pace in May. Broken down by job type, permanent vacancies continued to expand at a quicker rate than that seen for temp roles. Demand for short-term staff increased at the softest pace for five months.

Sector data showed that demand for staff in the private sector continued to outpace that seen in the public sector during May. The quickest rise in vacancies was seen for permanent roles in the private sector, even though the pace of expansion softened to a 13-month low. Meanwhile, the softest upturn in demand was signalled for short-term staff in the public sector.

IT & Computing posted the strongest increase in demand for permanent staff in May, closely followed by Hotel & Catering. Nonetheless, steep increases in vacancies were also seen across the other eight monitored job categories.

May survey data also pointed to a broad-based increase in demand for short-term staff, led by Hotel & Catering. The softest rise in temporary vacancies was meanwhile signalled for Retail.

With the supply of workers falling further and demand for staff remaining robust, recruiters noted sustained upward pressure on rates of starting pay in May. Despite softening to a four-month low; permanent starters' salaries rose at a rapid pace that was among the quickest since the survey began in October 1997. Pay growth for temporary workers was also sharp, though it was the slowest seen for 11 months.

Neil Carberry, Chief Executive of the REC, said. “These numbers show a hugely positive jobs market if you are looking for work. While the pace of growth has dropped after a stellar first quarter, by any normal measure there are still lots of vacancies out there, offering improved wages. For companies, they emphasise again that hiring is a challenge in this market, and getting it right matters, the help of professional recruiters will be vital. The market for temporary work is stabilising faster than for permanent staff, which could suggest a little caution creeping into employers’ thinking in the face of high inflation.”

“But compared to pre-pandemic, labour supply is still the big issue we have to solve,” Carberry added. “With over half a million people missing from the jobs market, and demand still growing strongly, this is a big, strategic issue for the UK. Growth is essential to funding public services and paying higher wages sustainably. Any plan for growth must include action to help people into work from inactivity, skills reform, support for innovation on productivity and targeted immigration reform.”

Claire Warnes, Head of Education, Skills and Productivity at KPMG UK, said, “For over a year now, we have seen a sustained mismatch in the growing numbers of vacancies in every sector of the economy against the inadequate supply of skilled candidates. The initial effects of this have been obvious, in particular the driving up of starting salaries. However, perhaps we are starting to see wider consequences of the systemic issues in the available workforce to support the growth opportunities which employers are chasing. We’ve seen the softest rise in permanent placements and temporary billings for over a year, and the growth in total vacancies hit a three-month low. Candidate availability is still falling, so it remains a hot market for those well-qualified in their sectors. But are employers starting to rethink their growth plans because of skills shortages which are proving difficult to fix as quickly as they need?”

“Jobseekers and employers alike are facing the greatest cost of living challenges in recent years. As these are expected to increase, at least in the short term, we will need to closely monitor the impact on recruitment confidence as well as growth appetite in key sectors of the economy. Employers are also continuing to face rising business costs and supply chain disruption, which will test the resilience of many as geo-political and economic turbulence continues,” Warnes said.