UK labour market hits two-year high as economy emerges from pandemic

• BDO’s Employment Index hits two-year high as final coronavirus restrictions are lifted
• Easing of restrictions also provides a boost to business optimism in February, however the cost-of-living crisis looms large

The strength of the UK labour market has returned to pre-pandemic levels for the first time, according to the latest Business Trends report from accountancy and business advisory firm BDO LLP.

BDO’s Employment Index rose for a fourth consecutive month to 110.75 in February, representing a monthly gain of 0.77 points. This is the highest level the index has seen since February 2020, when it reached 112.86 ahead of the UK’s first coronavirus lockdown. The index now sits well above the 95 level which indicates growth.

The jump in the Employment Index has been driven by the lifting of covid restrictions and associated economic recovery. As businesses fully re-open and resume normal operations, they have been looking to hire more staff to cope with increased demand. A shortage of workers due to Brexit and the pandemic has also made competition for employees fierce. Together, these factors have placed upward pressure on employment figures, reflected in BDO’s Employment Index.

The lifting of the remaining coronavirus restrictions has also led to a rise in BDO’s Optimism Index, which increased 0.9 points to 105.81 in February, marking a second consecutive month of improvement following December’s Omicron-related dip.

This rise was primarily driven by the BDO Services Optimism Index, which covers retail, hospitality and leisure among other industries. The index jumped by 0.94 points in February to reach 105.24 – its highest reading since July 2021 – reflecting the impact that remaining restrictions had on consumer-facing businesses.

However, this rise in optimism could be short lived. The impacts of Russia’s war on Ukraine are expected to weigh heavily on inflationary pressures, compounding existing concerns around the cost of living, which could see confidence decline in the coming months.

Commenting on the results, Ed Dwan, Partner and Head of BDO LLP in the North West, said: “Propped up by the government’s furlough scheme, the UK jobs market was largely resilient throughout the pandemic. As we emerge from a series of lockdowns and return to normality, the jobs market is now moving from resilience to growth, reflected in February’s buoyant figures.

“While it’s promising to see growth in business optimism throughout February, this could be short lived as inflation continues to rise at a faster rate than wages. Inflationary pressures are set to mount further over the coming months, with energy and fuel prices key drivers of this increase.”