Shortage of workers threatens recovery as economy reopens

Employers are scrambling to find hundreds of thousands of workers as staff shortages threaten to hold back the reopening of the economy.

Vacancies advertised across Britain jumped by 88,000 last month to hit a post-pandemic high of 747,000 ahead of the return of shops and outdoor hospitality on April 12, official figures show.

The demand was biggest in accommodation and food, where vacancies jumped 70pc or 29,000 to 70,000 according to the Office for National Statistics - the largest single monthly rise on record.

Fierce competition to hire staff could push up pay and ultimately spark higher prices for consumers, driving inflation higher and hurting the economic recovery.

It is thought a Covid exodus of foreign workers has squeezed the labour market, with as many as 1.3m people believed to have returned to their home countries when the pandemic struck. Credit agency Moody's said on Tuesday that the mass departures could hammer the finances of city councils, particularly in London.

Tej Parikh, chief economist at the Institute of Directors, said: “As businesses attempt to re-scale during the recovery we are likely to see the number of vacancies mounting further. With an anticipated surge in consumer demand over the coming months, some firms may even be unable to find and onboard staff as quickly as they need to.”

Matthew Percival, skills director at the Confederation of British Industry, said: "Having the highest number of vacancies since the pandemic first hit shows the value of the roadmap for reopening the economy.

"However, businesses are starting to report vacancies they’re struggling to fill so government support for skills and retraining is essential.”

The labour market has shown strong signs of life as the economy bounces back. The Office for National Statistics recorded the biggest fall in unemployment for six years in the three months to March, as the jobless rate surprised analysts with a drop from 5.1pc to 4.8pc. Employment also rose by 84,000 in its first increase since Covid struck.

Employers added an extra 97,000 people to payrolls during April - the biggest rise since 2015.

The figures came as England took its biggest step yet towards normal life with the reopening of indoor hospitality for the first time in five months, five weeks after non-essential stores welcomed back customers.

The pressure on jobs has been heightened by the slump in foreign workers, which Moody’s said will put local and national finances under even more strain after Covid.

It said: “Labour shortages are likely to gradually emerge or intensify in migrant-reliant sectors or those characterised by high turnover, including construction, transport, food processing, and health and social care.”

The jobs market has so far been shielded from the worst effects of Covid by Chancellor Rishi Sunak's furlough scheme, which will be wound up in September.

The Bank of England predicts a much smaller peak in unemployment this year, at 5.4pc, thanks to the furlough and the faster than expected relaxation of Covid-19 restrictions. It was previously predicted the rate could rise to more than double this level.

But hopes of a rapid recovery are already being overshadowed by the highly transmissible Indian variant of coronavirus, which has been found in dozens of areas across the country – prompting Prime Minister Boris Johnson to warn that the final stage of lifting restrictions could be delayed.

Even after April’s rise, vacancies are still more than 100,000 below pre-Covid peaks and payrolls are 772,000 below February last year, leaving pressure on wages muted.

Samuel Tombs, senior UK economist at Pantheon Macroeconomics, predicted a rise in unemployment within months once firms are forced to contribute to the furlough scheme.

He said: "While most furloughed staff will return to their former roles, a significant minority won't, especially in sectors such as retail where over-employment is rife.

"We expect redundancies to pick up again from July, when employers will have to cover 10pc of the missing wages of any furloughed staff, and then jump in September.”