Businesses are slowing down their recruitment efforts in response to a bleak economic outlook and mounting wage costs, according to recent surveys.
A joint report by consultancy firm KPMG and the Recruitment and Employment Confederation (REC) reveals that the number of people being placed in both permanent and temporary roles continued to decline in February. While the rate of decline has slowed compared to January, it still reflects signs of a weakening UK labour market. A separate survey from business advisory firm BDO also pointed to rising unemployment, as businesses brace for further increases in labour costs due to upcoming changes in national insurance contributions and minimum wage hikes in April.
The latest data from KPMG and the REC highlights a reduced demand for workers, with overall job vacancies continuing to drop in February. As more people lose their jobs, the number of jobseekers is rising, which is helping to keep overall wage pressures in check. The report also found that starting salaries have grown at their slowest pace in four years.
The Chancellor of the Exchequer, Rachel Reeves, is set to implement a £25bn increase in employer national insurance contributions and a 6.7% rise in the national living wage from April, which is expected to add to cost pressures for businesses.
Neil Carberry, chief executive of the REC, noted some optimism in the private sector despite the tax increases. “After a long winter, there are signs of improvement as we move into spring, led by the private sector, despite recent tax rises,” he said. Carberry urged Reeves to boost confidence in the UK’s economic recovery during her spring statement on March 26.
However, he cautioned that businesses are still cautious, with many “holding their breath” as they prepare for the impact of rising costs in April. Business leaders had previously warned that Reeves’s autumn budget, which included the national insurance hikes, could lead to job cuts or price increases.
KPMG’s Jon Holt echoed this sentiment, stating that many companies are adopting a “wait and see” approach to hiring. He suggested that the slower decline in recruitment observed in February could indicate that expectations of interest rate cuts and better-than-expected economic data are starting to ease some of the pressures on businesses.
BDO’s report highlighted a significant lack of confidence in UK businesses, which it said resembled the uncertainty felt in January 2021 during the Covid-19 lockdowns. UK business output fell for the second consecutive month in February, indicating a slowdown in overall economic activity, despite the resilience of the services sector.
BDO speculated that unusually warm weather and the ongoing shift in consumer spending from goods to services, which began during the pandemic, may be contributing to the relative strength of the services sector. Nevertheless, the firm anticipates that the broader economic slowdown in the UK will continue throughout the year.
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