Mounting pressure in the jobs market will present a challenge in the New Year for the Government, employers and the Bank of England, according to the Chartered Institute of Personnel and Development (CIPD).
Latest figures from the Office for National Statistics show the number of people out of work in the UK fell by 29,000 between August and October to 1.39 million.
The number of people claiming jobless benefit last month fell by 3,400 to 833,200, while average earnings rose by 4.1 per cent in the year to October.
However, the number of “economically inactive” people, (those not looking for work,) rose by 5,000 to 7.9 million.
John Philpott, chief economist at the CIPD, said these figures could lead to a difficult year for employers.
“A combination of rising employment, falling unemployment and increased numbers of economically inactive people has turned up the heat in an already tight labour market,” he said. “Signs of mounting pay pressure in the autumn months, especially in the public sector, are a particular cause for concern given that current and future pay demands are being driven up by rising retail price inflation.”
Philpott said employers in general would face a tough bargaining environment and will have to take action to contain wage costs if profits and investment plans were not to be squeezed.