Skills shortage 'is affecting growth'

Businesses are struggling to cope with a shortage of skilled workers and mounting pay pressures, according to a batch of reports today that highlights the tightness of the labour market.

Demand for new staff rose close to record levels last month but the availability of candidates was substantially lower than a year ago, one survey said.

The Recruitment and Employment Confederation (REC) said skills shortages were the only reason why growth in the number of people being taken on had slowed slightly last month. Gareth Osborne, its managing director, said: "The employment market continues to be characterised by a tightening in supply with severe skills shortages emerging as one of the biggest threats to continuing growth in the economy."

One of the biggest bottlenecks was on the high street where one-fifth of retailers said they could not get the right staff ahead of the Christmas period.

REC said the shortage of candidates had forced employers to offer better pay deals, with pay rates rising "sharply" last month.

This was echoed by Incomes Data Services (IDS), the labour market analyst, which said wage growth had accelerated for the first time in more than a year. IDS said the average pay rise hit 3.1 per cent over the three months to October - the first increase since August 2003.

It said pay negotiators were responding to the surge in headline inflation from 2.5 per cent in April to 3.3 per cent in October.

Alastair Hatchett, the head of pay services at IDS, said: "In the late summer we pointed out that the rising inflation rate would soon start to push up pay settlements. We are now seeing the first measurable sign that the trend has begun."

A quarter of the 57 pay deals over the quarter covering almost a million workers were at or above 3.8 per cent, IDS said.

Meanwhile, Mercer Human Resource Consulting forecast that wage growth in the UK would average 3.4 per cent next year, which it said was moderate given the strength of the labour market. Mark Sullivan, a partner, said: "The question is, how long can corporations keep the lid on pay rises when the job market is becoming increasingly buoyant?"

A survey by IDS of economists in the City of London showed that they expected headline wage inflation to hit 3.5 per cent and stay there for much of 2005.

George Johns, a UK economist at Barclays Capital, said the REC survey pointed to wage growth excluding bonuses hitting 5 per cent by the middle of next year.

Last week the EEF, the manufacturers' organisation, said that pay settlements rose to a six-year high of 3.1 per cent in the three months to October.