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UK employers are increasingly resorting to bidding wars to retain staff, according to a survey that appears to contradict recent data suggesting the labour market is beginning to cool and wage inflation is easing.
In the past year, 40 per cent of employers have made a counter-offer to try to keep an employee who has received a job offer elsewhere, according to a quarterly survey published on Monday by the Chartered Institute of Personnel and Development.
Within this group, more than half had used counter-offers more frequently than in the past year, and a quarter expected to use the tactic more often in the year ahead.
The survey, conducted in June and early July, suggests that UK employers are struggling to fill posts, despite the weak economic backdrop, and that wages are still growing rapidly as a result.
The findings come ahead of official labour market data due out on Tuesday that will be closely watched by rate-setters for any clues on the future direction of wage growth.
After raising interest rates to 5.25 per cent earlier this month, the Bank of England said it would be monitoring “the tightness of labour market conditions and the behaviour of wage growth and services prices” for evidence of more persistent inflationary pressures that would require further rate increases.
Many analysts think the labour market is finally starting to cool, with recent data showing unemployment edging up, vacancies falling and fewer employers reporting labour shortages. However, this has not yet led to any slowdown in wage growth, which was running at about 7 per cent in May.
The CIPD said its net employment balance — which measures the difference between employers expecting to increase staff headcount in the next three months and those expecting to cut staffing — remained steady at 28, while the share of employers planning redundancies remained low.
More than two-fifths of employers said they had vacancies they were struggling to fill, with the most acute problems seen in education, transport and storage and across the public sector.
The median expected increase in basic pay remained steady at 5 per cent — the highest since the survey began running in 2010. However, a growing share of employers said they were not sure whether they would carry on raising pay, and that it would depend on their organisation’s performance.
Jon Boys, senior labour market economist at the CIPD, said the growing use of counter-offers was “reflective of the tight labour market” but potentially problematic because they could “exacerbate pay gaps, cause equal pay challenges, or result in a drop in employee engagement”.
Counter-offers are most common in London, but even employers who use them think they only have a short-term impact and are less effective at persuading staff to stay over a longer period.