Firms have continued to hire more staff and business optimism rose in March, according to the latest report from business advisory firm BDO.
Its employment index jumped for a fifth consecutive month in March to 112.74, a 1.99 increase on February. A level above 95 indicates growth.
It is the fastest expansion for the UK labour market since February 2020, the month before the pandemic struck.
Manufacturing and services companies were keen on hiring staff and their optimism outweighed concerns across the economy about disrupted supply chains. This has been exacerbated by the Russian invasion of Ukraine.
Data from the Office for National Statistics also showed a fall in the unemployment rate. It dropped to 3.9 per cent in the three months to January, dipping below pre-pandemic levels for the first time.
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Also, the Resolution Foundation think-tank said wages have been driven up by the competitive labour market as firms increase pay to attract and retain workers.
But economists fear wage growth will be offset by rising inflation and soaring energy prices, meaning employees will not feel the benefits of a buoyant labour market.
Nye Cominetti, senior economist at the Resolution Foundation, said: “With inflation set to reach eight per cent in the coming months, most workers’ earnings will fall in real terms, further squeezing living standards in the months ahead.”
BDO also warns that hiring intentions will slip in the coming months as businesses are “distracted” by pressures.
Kaley Crossthwaite, a partner at BDO, said: “The labour market has shown resilience throughout the pandemic and then continued growth as restrictions have gradually lifted.
“While it’s reassuring, this strong form could come to an end as the costof-living crisis, rising inflation and wider geopolitical matters distract businesses from growth and place pressure on the employment index.”