The ICAEW/Grant Thornton Business Confidence Monitor (BCM) – a quarterly  survey of 1,000 businesses – suggests that the UK labour market will continue to recover strongly over the coming months.

The BCM shows that private sector hiring intentions are on the rise in the UK. This quarter, businesses report increasing their number of employees by 1.6% over the past 12 months. In addition, this is projected to rise to 2.2% growth over the coming 12 months, an increase that, if realised, could provide jobs for a further 450,000 private sector employees. Particularly fast employment growth is expected to come from the construction industry at 3.5% for the next 12 months, closely followed by IT & Communications and Business Services, at 3.4% and 3.2% respectively.

However, an improving labour market is creating problems for businesses. In Q2 2014, 19% of companies report that staff turnover is a greater challenge than a year ago, up from 14% in Q2 2013. In addition to staff turnover, the availability of workers with the appropriate skills is also becoming a challenge for more businesses. Some 15% of companies report that finding the right management skills is a greater challenge than a year ago, and 16% report the same for non-management skills. These shares have been generally climbing, up from 11% and 10% at the same point in 2013.

Overall, the latest BCM suggests that unemployment will fall sharply between now and the next general election. Business confidence, as measured by the BCM Confidence Index, remains at a record high and suggests the economy should expand by over 3% this year – broadly in line with the latest OECD forecasts for the UK.  On the downside, the BCM suggests that skills shortages could become a constraint on growth, as employers can’t find the workers they need for roles. In addition, businesses expect growth to come largely from domestic sales rather than exports, which could lead to some pretty grim trade deficit figures over the coming months as the UK imports far more than it exports.