The latest annual analysis of UK labour market trends by the Chartered Institute of Personnel and Development (CIPD) predicts that the country’s flexible labour market will continue to grow in 2016, helping to offset employer concerns of a skills shortage.

Despite the introduction of the national living wage, the CIPD expects wage growth to flatten at around 2% − well below the 3.5% anticipated by the Bank of England. The organisation also forecasts that wage inflation and skills shortages will be substantially contained by the growing flexible labour market, which includes highly-skilled contracting professionals and Umbrella Company Employees.

The organisation’s chief economist, Mark Beatson, cautions that sustainable economic growth will only be possible if more is done to raise workplace productivity, which he believes is the greatest risk to the country’s long-term economic prospects. Even so, the CIPD is more bullish than the independent Office for Budget Responsibility (OBR) in its forecasts for employment growth. While the OBR predicts a further rise of 400,000, the CIPD is confident that the figure will be closer to 500,000.

Predicting that unemployment may fall to below 5%, a rate not seen since 2005, Mr Beatson anticipates that many economic forecasting models will “start flashing amber or red amidst warnings of skill shortages and higher wages pushing up costs and prices.”

He continued: “However, shortages of skilled labour are not having any noticeable effect on economic growth, except for a few very specific sectors, such as construction. This is because our research shows that most employers remain confident about recruitment going into 2016 and most say they have a choice of suitable candidates for most positions.”

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