With today’s (22 May 2024) news that inflation has fallen to 2.3%, the lowest since 2021, Matt Dickens, Director at Astute People shares his thoughts on what this drop in inflation could mean for recruitment.

graphic showing UK inflation at 2.3% in April 2024 — ONS data showing UK inflation at 2.3% in April 2024

Inflation is a critical economic factor that influences various aspects of the job market, including recruitment.

When inflation rates decrease, the effects can be far-reaching, impacting everything from salary expectations to the overall economic environment in which businesses operate.

Here’s an in-depth look at how a drop in inflation could affect recruitment practices and outcomes.

Economic stability and predictability

Increased business confidence

Lower inflation often signals economic stability, which can boost business confidence.

Companies are more likely to invest in expansion and long-term projects when they are not worried about rapidly increasing costs.

This confidence translates into more robust hiring plans as businesses seek to grow and capitalise on stable market conditions.

Budget predictability

With lower inflation, companies can better predict their costs and budget more effectively.

This predictability allows for more consistent recruitment efforts, as businesses are less likely to freeze hiring or cut back on recruitment budgets due to unexpected cost increases.

Wage pressures

Moderate wage growth

During periods of high inflation, employees typically demand higher wages to keep up with the rising cost of living.

This can strain company budgets and complicate recruitment efforts.

When inflation drops, the pressure to continually increase wages diminishes, allowing companies to offer competitive but more sustainable salary packages.

Competitive compensation packages

A decrease in inflation enables companies to structure more attractive and balanced compensation packages without constantly adjusting for inflation.

This stability can help attract and retain top talent, as potential employees see value in a reliable and predictable compensation structure.

Cost of living and talent mobility

Affordable living costs

Lower inflation helps stabilise or reduce the cost of living, making it more affordable for employees to relocate for job opportunities.

This can be particularly beneficial in attracting talent to regions where high living costs previously deterred candidates.

Increased talent mobility

When the cost of living is stable, candidates are more willing to move for new job opportunities.

This mobility is crucial for addressing regional skill shortages and ensuring that companies can access the talent they need, regardless of location.

Training and development

Investment in skills development

With lower inflation, companies might find it easier to allocate funds for training and development programs.

Investing in upskilling and reskilling the workforce is essential for addressing skill gaps, particularly in industries requiring specialized knowledge.

Enhanced training opportunities make positions more attractive to potential recruits, who value ongoing professional development.

Long-term workforce planning

Economic stability allows companies to engage in more strategic long-term workforce planning.

This can include developing robust apprenticeship, mentorship, and internship programmes that ensure a steady pipeline of skilled workers, making the recruitment process more efficient and effective.

Recruitment strategies

Enhanced recruitment budgets

Companies might find that lower inflation gives them more financial flexibility to enhance their recruitment efforts.

This could mean more resources for job advertising, recruitment technology, and hiring incentives, all of which can improve the effectiveness of recruitment campaigns.

Broader recruitment reach

With more stable costs, companies can afford to cast a wider net in their recruitment efforts.

This might include attending more job fairs, participating in industry conferences, or expanding their digital recruitment campaigns to reach a larger and more diverse pool of candidates.

Employer benefits and employee satisfaction

Improved benefits packages

Lower inflation can enable companies to offer better benefits packages, including health care, retirement plans, and other perks.

Attractive benefits are a significant factor in recruitment, helping companies to stand out in a competitive job market and attract high-quality candidates.

Increased employee satisfaction and retention

Employees are more likely to stay with a company if they feel their wages and benefits are keeping up with the cost of living.

Lower inflation helps maintain the real value of employee compensation, leading to higher job satisfaction and reduced turnover rates, which in turn reduces the need for constant recruitment.

Economic confidence

Boosted job market confidence

Lower inflation can enhance overall economic confidence, encouraging more people to enter or re-enter the job market.

This expanded talent pool gives recruiters a larger selection of candidates to choose from, improving the chances of finding the right fit for open positions.

So, what could a drop in inflation mean for recruitment?

A drop in inflation can significantly impact recruitment by creating a more stable and predictable economic environment.

This stability benefits both employers and employees, leading to more sustainable wage growth, increased talent mobility, and enhanced investment in training and development.

For businesses, lower inflation means more predictable budgets, the ability to offer competitive compensation packages, and the opportunity to invest in broader and more effective recruitment strategies.

Ultimately, these factors combine to make it easier for companies to attract, hire, and retain the talent they need to thrive in a competitive marketplace.

By understanding and leveraging the benefits of lower inflation, businesses can enhance their recruitment efforts and build a more resilient and capable workforce.

This proactive approach will help organisations navigate the complexities of the job market and secure the talent necessary for long-term success.