Tight labour market continuing to hit UK firms - ONS

More than a quarter of British companies were hit by worker shortages last month, a survey from the Office for National Statistics showed on Thursday.

The latest Business Insights and Conditions Survey found that 27% of businesses with ten or more employees were suffering worker shortages in late February, largely unchanged on early January, when 28% reported difficulties.

Hourly wages were also rising, with 13% of all respondents seeing increases in January compared to December 2022. That figure rose to 24% for businesses with ten or more staff.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "This latest snapshot from the ONS will do little to assuage concerns about the tight labour market, and could increase the likelihood that the Bank of England may be forced to raise interest rates further, to stop inflation becoming embedded in the economy.

"Even though the number of vacancies had shown signs of falling at the end of last year, it hasn’t don’t much to ease the labour crunch."

The survey also found that the two main concerns for British businesses remained energy prices, which have soared since Russia invaded Ukraine last year, and inflation of goods and services prices. One in ten businesses were also affected by industrial action in January.

There were some signs of optimism, however, with half stating they had been able to get the materials, goods or services they needed from within the UK in January without encountering supply issues.

The number of larger companies experiencing global supply chain disruption also eased, down 3 percentage points on December to 12%.

However, Streeter noted: “Many [companies] will have little option but to increase wages to attract and retain staff. This piles on yet more pressure at a time when energy costs and rising prices of goods are still causing headaches.”

The BoE has increased interest rates ten times since December 2021, with the cost of borrowing now standing at 4%. Inflation is 10.1%, down from last year’s historic peak of 11.1% but still well above the BoE’s 2% target.

Markets are currently pencilling in another rise when the Monetary Policy Committee meets later this month, of between 0.25 and 0.5 percentage points. It is unlikely to be an unanimous decision, however, with external member Swati Dhingra warning on Wednesday that higher borrowing costs would pose a “material risk” to the UK economy at a time when household budgets are already under significant pressure.

The BICS is carried out fortnightly and is intended to provide real-time information on the issues affecting UK businesses and the economy.