The UK private sector is experiencing its lowest employment levels in a decade, as hiring decisions are clouded by uncertainty surrounding economic prospects amidst high interest rates and sluggish consumer demand.
According to the latest data from BDO, a leading accountancy and business advisory firm, the employment index has dropped for the seventh consecutive month to 98.77, marking its lowest point since August 2013, during the aftermath of the global financial crisis.
This downward trend in hiring mirrors the subdued economic landscape, with projections indicating that the UK’s annual GDP growth will linger at a modest 0.6 per cent this year. Recent figures suggest the economy expanded by only 0.5 per cent last year, with indications pointing to a recession towards the end of 2023, as forecasted by analysts.
BDO’s findings align with other indicators showing a cooling job market. The latest workforce snapshot from the Recruitment and Employment Confederation and KPMG reveals a slowdown in starting salary growth to its weakest pace in nearly three years. Moreover, permanent hiring has been in decline since October 2022.
The Chartered Institute of Personnel and Development (CIPD) reports a downward revision in pay expectations across both private and public sectors. Private firms anticipate a 4 per cent rise in pay for 2024, down from previous years, while expectations in the public sector have also dipped from 5 per cent to 3 per cent.
Despite these challenges, a third of surveyed employers expressed intentions to expand their workforce in the next three months, while one in ten anticipates reducing staffing levels.
Conflicting signals in unofficial labour market data versus official estimates from the Office for National Statistics have complicated the Bank of England’s assessment of inflation trends. Weaker pay growth is seen as a prerequisite by rate-setters for initiating interest rate cuts from the current 5.25 per cent.
In a more positive note, BDO highlights a growth uptick in January, with its output index reaching its highest level since July 2022 at 99.42. This resurgence in service sector activity is seen as a driving force behind the overall improvement.
Kaley Crossthwaite, a partner at BDO, acknowledges the cautious optimism among businesses, noting, “It’s encouraging to see our resilient services sector leading some positive momentum in January.” However, she stresses the need for targeted support for businesses as demand continues to recover gradually.
Financial markets anticipate three base rate cuts from the Bank of England this year, fewer than the six initially projected. This recalibration reflects the central bank’s stance, emphasizing the necessity of more evidence of falling inflation before considering policy loosening.
Crossthwaite underscores the ongoing challenges, stating, “We can’t be complacent. While certain pressures are starting to ease, demand hasn’t fully returned to pre-pandemic levels, and businesses will require tailored support in the months ahead.”