Businesses plan to reduce staff hires

Recruitment activity across the UK continued to be dampened due to ongoing economic uncertainty and reduced confidence among businesses

The overall demand for staff remained subdued in July as a result of a weaker economic climate and reduced market confidence, with permanent placements contracting at the quickest rate for just over three years, shows latest KPMG and REC jobs report.

But the overall availability of staff rose significantly amid the slowdown in recruitment and reports of redundancies.

The latest upturn in total labour supply was the steepest recorded since October 2009, excluding the pandemic period.

While there were signs of pay pressures moderating again in July, permanent salaries continued to rise at a sharp pace – despite the rate of inflation falling slightly. In contrast, temporary staff billings increased at the slowest pace in 29 months.

Claire Warnes, partner, skills and productivity at KPMG UK, said: ‘Businesses are still freezing hiring, with some redundancies, which led to the sharpest upturn in labour supply since December 2020.

‘This is good news for recruiters who have an even larger pool of candidates to place, but with the number of vacancies available increasing at the slowest pace for nearly two and a half years, supply and demand are once again off balance.

‘For job seekers, the ongoing competition for skilled workers and cost of living pressures are keeping starting salaries high, making it an attractive time to move roles, though they may be cautious about doing so.’

Following the seasonally adjusted index, permanent placements moved further below the neutral 50.0 threshold, standing at 42.4 in July – the sharpest seen for just over three years.

The weaker economic outlook, alongside a drop in client confidence, had led to a greater hesitancy to commit to new hires.

On vacancies, the Office for National Statistics (ONS) pointed to a further reduction across the UK. The number of available roles fell by 85,000 to 1,034,000 in the three months to June 2023, which marked the lowest level since the three months to July 2021.

The demand for permanent workers increased across the majority of the 10 monitored job sectors. Blue collar topped the rankings, closely followed by hotel and catering. However, demand for placements in the IT, computing, and secretarial sectors weakened.

For temporary vacancies, hotel and catering topped the demand league table in July. Strong rates of growth were also reported for engineering. In contrast, the construction and secretarial sectors saw modest drops in demand.

Neil Carberry, REC chief executive, said: ‘The jobs market overall remains fairly robust, with vacancies and pay still rising and unemployment low but there is a sense that the economy will need some growth soon to sustain this positive picture.

‘To some extent, this is normalisation as the post-pandemic boom abates. This is seen in the scale of companies reshaping themselves while hiring in other areas. Recruiters report that the quickest rise in labour supply since the pandemic has been driven by an increase in redundancies.’

According to BDO’s latest employment index, a more pessimistic business outlook was similarly felt, as businesses reduced vacancies while battling higher interest rates, weak global demand, and ongoing supply difficulties. The number of vacancies fell by 85,000 in Q2, while pay growth cooled.

Kaley Crossthwaite, partner at BDO LLP, said: ‘A more pessimistic outlook from businesses and consequent loosening of the labour market are the first indicators of the slow in economic growth expected towards the end of the year.

‘With yet another hike in interest rates from the Bank of England last week, this downturn is only set to worsen in what should be a golden quarter for many, if more isn’t done to support businesses. To reverse these trends, government needs to work more closely with industry to ensure firms of all sizes have tailored support in order to weather the storm, invest and grow.’

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