Businesses are taking on part-time staff at the fastest pace in three years, as owners look to meet rising demand for workers without shouldering the long-term costs of permanent hires.
The part-time hiring index published by KPMG and the Recruitment and Employment Confederation (REC) rose to a three-year high of 52.7 in June, up from 52.2 in May and comfortably above the 50-point mark that separates growth from contraction.
For SME owners, the logic is familiar. Stronger economic activity is creating a need for extra hands, but after two years of rising employer National Insurance, minimum wage increases and new employment rights, few are willing to lock in fixed payroll costs that would be hard to unwind if growth stumbles again. It is a strategy smaller firms have reached for before when the outlook turned uncertain.
Neil Carberry, chief executive of the REC, said: “After a long recruitment winter, these figures show truly hopeful signs. Temporary and contract work once again leads the way, as firms react to demand without yet feeling confident enough to commit to larger-scale permanent hiring.”
There were clearer signs within the data that the labour market is picking up steam after tax rises and minimum wage increases knocked hiring appetite across the SME economy.
The permanent hiring index jumped to 49.1 in June from 44.1 in May. That still marks contraction, and the measure has now been below the 50 threshold for 45 consecutive months, but the pace of decline is the slowest in some time.
Lisa Fernihough, advisory vice-chair at KPMG UK, said: “Although permanent placements are still falling, the pace of decline is easing and back to a rate we were seeing before the Iran conflict put a pause on active recruitment for many companies.”
The backdrop remains tough. Figures from the Office for National Statistics show unemployment reached 4.9 per cent in the three months to April, up from 4.6 per cent a year earlier, while the number of vacancies has fallen to a five-year low of 707,000. As Business Matters reported in May, long-term unemployment has climbed to a decade high, with small employers warning that successive cost increases are choking off new hires.
Candidate supply, at least, remains plentiful. The index measuring full-time jobseekers dipped to 60.2 in June from 62.4, while temporary candidate availability fell to 59.3 from 61.8. Both remain well into growth territory, meaning firms that do hire face a deeper talent pool than at any point in recent years.
For owners budgeting the year ahead, separate figures from research company IDR suggest wage pressure has plateaued. Workers received an average pay rise of 3.5 per cent in the three months to May, the fifth consecutive such reading. Nearly half of settlements landed between 3 per cent and 3.99 per cent, just over a third exceeded 4 per cent, and one in ten workers secured more than 5 per cent.
That stall in pay growth matters beyond the payroll run. Economists view the labour market as a crucial factor in whether the Bank of England raises interest rates this year. While the US-Iran war has put upward pressure on inflation, continued weakness in the jobs market could persuade rate-setters to leave borrowing costs at 3.75 per cent for the rest of the year, welcome news for any small firm carrying variable-rate debt.
For now, the message from the data is one of cautious optimism: demand for staff is returning, but Britain’s employers are hiring with one hand on the exit.
