The graduate labour market is showing the first signs of slowing down and rising inflation has led to a drop in real wages as employers worry about the effects of a recession.

Institute of Student Employers (ISE) reports that the typical (median) graduate salary is £30,921 – up 1.4% from £30,500 last year; with inflation at 8.6%, graduates have effectively taken a 7.3% pay cut from last year.

Economic pressures are also causing employers to become more cautious with hiring.

ISE’s annual Student Recruitment Survey reports that graduate vacancies will increase 2% over the next year, down from growth of 17% in 2021/22 and 9% the previous year (2020/21). Some employers said that they are experiencing a hiring freeze, or that they are currently unsure of recruitment levels.

Meanwhile vacancies for apprentices continue to grow, but from a lower base rate.

While respondents to the survey reported they would hire around 20,000 graduates over the next year, school leaver recruitment will increase from nearly 5,000 vacancies in 2021/22 to more than 6,000 vacancies this year.

Threat of a recession is the reason the majority of employers gave for reducing recruitment in the coming years.

However, staff shortages in some sectors continue and around one in ten graduate vacancies go unfilled each year. Forty per cent of employers said they are finding it difficult to fill graduate jobs.

A factor contributing to this could be fewer applications compared to this time last year, with on average 62 applications per vacancy in 2021/2022, compared to 91 applications per vacancy in 2020/2021.

Graduates’ reneging on offers is also an issue. This has reached a historical high of 12%, an increase from 7% last year.

Stephen Isherwood, Chief Executive at the ISE said: “Graduate recruiters are cautious in the current economic climate. Many face talent shortages, but our historical data shows that when the economy tightens hiring numbers decline.

“But the majority of graduate programmes are now open for applications and employers are still recruiting more graduates than they did pre-pandemic. Students should remain positive but, they need to apply early. Don’t hang around, things may get tougher as we move through the year.

“We are concerned that due to the current inflation rates in the UK, graduates are experiencing a real wage decrease. Employers tend to prioritise existing workers over new hires when they review salaries, but graduates entering the work place often face higher accommodation and travel costs when they start employment.”