A tight labour market in the UK is adding to inflation woes, according to a release by specialist staffing firm Robert Half International Inc.

To combat this, new approaches are needed for reskilling and upskilling talent, according to the firm. A new push is also needed for efforts aimed at enabling people to access employment, diversifying the talent pool and leveling up the economy.

“The stubbornly high inflation and interest rates that the UK is experiencing are cause for concern,” said Matt Weston, senior managing director, UK and Ireland, at Robert Half. “We’ve seen a member of [Chancellor of the Exchequer] Jeremy Hunt’s economic advisory council call for the UK to be pushed into a recession in order to rebalance this issue, yet such blunt measures, if implemented, are aiming to tackle a deeply multi-layered and complex problem.”

Weston continued, “While the current economic climate has been influenced by a myriad of unprecedented events over the last few years, the tight UK labour market, squeezed by chronic skills shortages, is substantially adding to inflationary pressures.”

Workers know their worth and — with the cost of living increasing — they want better pay or they will leave for another firm, he said. And this puts pressure on the labour market.

“From a labour market perspective, there are two main issues to be tackled,” Weston said. “In the short term, business leaders need to pay attention to holistic, overarching nonfinancial retention strategies, addressing employees’ pain points and preventing flight-risk talent from leaving. On a larger scale, such an approach has the potential to considerably slow the inflation-fuelling wage/price spiral.”

In the longer term, labour market tightness must be addressed, he said.

“One way to do so is encouraging a decrease in nonstudent economic inactivity,” Weston said. “Our latest Jobs Confidence Index has seen encouraging results in Q1 2023, as more people reentered the labour market. The bigger problem, though, is the industries-wide skills gap. We’ve already seen a brain drain of talent from the country post-Brexit and our recent JCI signals poor figures for labour productivity growth across comparable occupations. There simply isn’t enough talent to fill the over 1 million vacancies in the UK. This needs the participation of industry, academia and government to solve.”