Strong demand for labour is increasing recruitment pressures for employers as the growth in labour supply fails to keep pace with labour demand, according to the latest quarterly Labour Market Outlook from the Chartered Institute of Personnel and Development and The Adecco Group.

The report, based on a survey of 2,001 employers, found that these recruitment pressures are worsened by a ‘supply shock’ of far fewer EU nationals coming into the UK. The report points to data from the Office of National Statistics that shows the number of EU-born workers in the UK increased by just 7,000 between Q1 2017 and Q1 2018, compared with an increase of 148,000 from Q1 2016 to Q1 2017. This represents a fall of 95% and has fed into a tightening of the labour market, which is being seen through skills and labour shortages being reported by employers.

Gerwyn Davies, senior labour market analyst for the CIPD, commented on the slowdown of EU-born workers in the UK, “This is feeding into increasing recruitment and retention challenges, particularly for employers in sectors that have historically relied on non-UK labour to fill roles and which are particularly vulnerable to the prospect of future changes to immigration policy for EU migrants. With skills and labour shortages set to worsen further against the backdrop of rising talk of a ‘no deal’ outcome with the EU, the need for the government to issue consistent, categorical assurances about the status of current and future EU citizens, whatever the outcome of the negotiations, is more important now than ever.”

Meanwhile, CIPD and the Adecco Group’s report found that during the past three months, the net employment balance – a measure of the difference between the proportion of employers who expect to increase staff levels and those who expect to decrease staff levels – has decreased slightly to +23 from +26 in Q3 2018.

Employment growth looks set to be particularly strong among business services (+37), transport (+38) and construction (+38) firms. Looking at the regions, employment confidence is highest in London (+31) and the South West of England (+30), and lowest in the North East of England* (+10) and the West Midlands (+13), with Scotland matching the UK average of +23.

The report also highlighted vacancies. It found that the number of applicants per vacancy has dropped across all roles (low, medium and high-skill) since summer 2017.

While demand for labour is continuing, median basic pay expectations in the 12 months to June 2019 remain at 2%, and mean basic pay expectations have risen slightly, from 2.1% to 2.2% in the last three months. New starters and key staff are more likely to be getting a salary increase.

The report also suggests that the squeeze on skills is having an impact on many employers’ pay decisions. Half of organisations (53%) that have experienced increased difficulty recruiting staff during the past 12 months have increased starting salaries in response. A quarter (24%) have done so for most vacancies, and a further quarter (28%) have done so for a minority of vacancies.

Among organisations that have experienced increased difficulty retaining staff over the past 12 months, 55% have increased salaries, with 30% raising salaries for the majority of staff and 25% doing so for key staff only. More than four in ten employers (42%) have not raised salaries at all in response to rising retention difficulties, highlighting the wider productivity challenges and cost pressures facing many organisations.

Alex Fleming, Country Head and President of Staffing and Solutions, The Adecco Group UK and Ireland, added: “With Brexit looming we’re seeing a talent shortage and a more competitive marketplace. In this candidate-short landscape the pressure is on employers to not only offer an attractive salary, but also additional benefits.”