Jobs show fastest growth rate since 1997

Recruitment agencies and building trade lead the way

Encouraging news for the economy arrived on the first day of the election campaign. The building industry's two-year recession seems set to end, while the latest survey of the jobs market shows the fastest increase in permanent placements for 12 years and the strongest growth in temporary billings for nearly three years.

The pick-up in employment will probably have the greatest political impact. The lower-than-expected rise in unemployment has helped to restrain the growth in public borrowing and restore public faith in Labour's ability to manage the economy.

The brightening picture for employment was confirmed by the latest Report On Jobs issued by KPMG and the Recruitment and Employment Commission. The number of permanent staff appointed by recruitment consultancies rose again in March, with growth picking up to the strongest rate since October 1997. IT staff were in particularly strong demand, and the public sector is still recruiting. Public-sector employment has risen in every quarter since 1998, and rose by 2.7 per cent in the last months of 2009. However, with all the main parties pledged to much tighter public spending, this trend looks likely to switch into reverse over the coming months.

The growth in temporary appointments is at its highest since May 2007. There is also evidence that the wave of pay freezes and very low settlements may also be ending; pay pressures are described as "solid" as the labour market tightens, albeit from low levels.

Bernard Brown, the head of business services at KPMG, warned: "These figures show private-sector confidence is returning and the UK is exiting recession at a pace. However, a lot of the current hiring activity is going on in the public sector. The public-sector recession, which clearly is on the cards, has not hit the jobs market yet but, when it does, the upwards trend we have seen over the last couple of months may come to a halt."

One of the few weak spots in the labour market is construction, where firms are still shedding labour. That was confirmed in a survey of business confidence in the construction sector by the Chartered Institute of Purchasing and Supply. However, sentiment among building company managers has turned positive for the first time since February 2008, following the sharpest drop in output since 1974. Meanwhile, the Bank of England reported that the rate at which households were paying off mortgage debts was slowing, suggesting a return to more vigorous consumption later this year. Housing equity withdrawal – one of the main drivers of growth during the boom – has turned negative in this recession. But the net injection of housing equity – people paying off mortgages – slowed to just over £4bn in the last quarter of 2009 from £7.1bn in the first quarter. In all, British households have paid off £36.4bn in mortgage debt during the downturn.

Howard Archer, the chief economist at Global Insight, said: "The net injection of housing equity is the consequence of the ongoing desire of many people to improve their personal balance sheets given high debt levels and still serious concerns and uncertainties over the economic situation."

The British Chambers of Commerce said exports had "mostly improved and remain strong for manufacturing" but there was no end in sight to the "worrying" slump in investment.