Wednesday, March 08, 2023 7:00 a.m.
London businesses are the most reluctant to take on new staff in the UK due to uncertainty over whether the country will eventually tip into recession, a closely watched survey released today reveals.
Businesses in the capital are cutting back on plans to increase their workforce amid concerns over an impending drop in consumer spending amid the economic crisis.
Consulting firm KPMG and the Confederation of Recruitment and Employment (REC) permanent employment index fell to their lowest level since October last year, at 42.2 points last month , the lowest of any region in the UK.
The reading is well below the 50 point threshold that separates growth and contraction, meaning London businesses are taking on permanent staff at a slower pace.
February’s reading was also a sharp drop from January’s 47.9 points.
Experts said businesses in the capital were hiring part-time staff to ensure they could continue to operate smoothly without increasing fixed costs that could hit them if the country slips into recession.
“As recruiters determine what the variable economic outlook could mean for their business and their staff, it makes sense that we continue to see interim bills holding up so well. Temporary staffing ensures companies can continue to provide goods and services, and that people can develop their careers – even when the economic outlook is unclear,” said REC Deputy Chief Executive Kate Shoesmith.
The temporary hiring index remained in expansionary territory at 52.2 points, although it quickly fell from 55.2 points.
London businesses are slashing hiring plans…
A recent data slew, however, indicated that the UK economy is much stronger than feared at the start of the year.
That prompted some economists to backtrack on their recession warnings.
London’s labor market is weaker than the rest of the UK, with the National Permanent Hiring Index hitting 46.3 points, down slightly from 46.8 points.
Unemployment has yet to rise substantially and there is still demand for new hires despite companies being warned to prepare for a recession for months.
… at the fastest pace in Britain
Typically, during economic downturns, companies lay off staff to cut costs in response to reduced household spending.
However, there is a risk that unemployment is set to rise later in the year when the full effects of the Bank of England’s ten successive interest rate hikes ripple through the UK economy.
Permanent starting salaries rose at a faster pace last month than in January to 61.3 points from just over 60 points, signaling that the Bank may raise borrowing costs for the eleventh consecutive time on March 23.
Figures from the Office for National Statistics still show that, despite strong wage growth, inflation continues to erode real incomes at one of the fastest rates on record.