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South West employers are continuing to create jobs but a shortage of candidates means starting salaries are soaring to near record levels, a new report says.

The latest KPMG and REC, º£½ÇÊÓƵ Report on Jobs: South of England, which covers the region, said hiring activity continued to increase at a robust pace in January.

Permanent placements rose sharply, while temp billings growth quickened to a five-month high amid reports of strong demand for staff and rising activity at companies.

Recruiters frequently mentioned that increased market activity and strong demand for workers supported growth. Higher temp billings were generally linked to robust demand for staff and efforts to meet rising workloads at firms.

But reports from panellists suggested that skills shortages, a generally low unemployment rate and a reluctance to switch roles due to Covid uncertainty had dampened candidate numbers.

When explaining the fall in temp candidate numbers, recruiters often blamed strong demand for staff, a greater preference among candidates for permanent roles and IR35 tax changes.

Vacancies data showed slightly softer rises in demand for both permanent and temporary staff at the start of the year, but in both cases the rate of expansion was well above the long-run series trend.

The candidate shortages led to further substantial increases in rates of starting pay for both permanent and short-term staff. Notably, the supply of permanent workers fell at a sharper rate than in December.