Hiring slows as businesses fret over prospects for economy

Businesses were motivated to trim hiring over the summer by economic uncertainty exacerbated by Sir Keir Starmer’s downbeat framing of the health of the economy, a survey indicated.
The prime minister’s insistence that Labour had inherited the worst set of economic circumstances from the Conservatives since the Second World War was cited as a key factor in causing companies to rein in recruitment last month.
The Recruitment and Employment Confederation (REC) and KPMG permanent placings index dropped to 44.6 from 47.7 in July, meaning that the index has been below the 50-point mark that separates growth from contraction since October 2022.
Temporary hiring contracted as well last month, with the index down to 49.5 from 49.8 the previous month. Businesses typically turn to part-time staff during periods of economic volatility.
The researchers’ report on jobs has taken on added significance due to concerns about the accuracy of the monthly labour market data from the Office for National Statistics.
Greater caution over expanding staffing levels was attributed to lower demand from consumers and a lack of clarity over the Labour government’s tax and spending plans at its first budget on October 30.
Starmer and Rachel Reeves, the chancellor, have come under fire for painting an overly gloomy picture of the UK economy since taking office. The UK had the fastest growing economy in the G7 group of seven of the world’s advanced economies in the first half of this year and a number of investment banks have raised their expectations for growth in 2024 in recent weeks.
Jon Holt, chief executive and senior partner of KPMG in the UK, said: “Recent government warnings that the UK’s economy may weaken further before improving add to the overall sense of uncertainty, affecting recruitment plans.”
Recruitment is also likely to have been constrained by the summer lull in business activity, analysts said.
Neil Carberry, chief executive of the REC, said: “August is always a difficult market to judge because of the summer break, but this month’s survey supports what we have been hearing around the country — employers are still cautious.”
He said that there was “underlying momentum” in the jobs market, but that businesses had put hiring on hold until greater clarity over the policy and growth landscape emerged.
For the Bank of England, reservations over hiring will be welcomed. The central bank has stressed that demand for workers and wage growth need to ease before interest rates can continue to fall.
The Bank’s monetary policy committee, the nine-strong panel tasked with setting the interest rates in the UK every six weeks or so, voted 5-4 in favour to lower the base rate by 25 basis points to 5 per cent at its previous meeting on August 1.
KPMG and the REC’s vacancy index slipped to 49 in August from 49.1 in the previous month, with permanent billings contracting slightly. Demand for staff was weakest in the IT, construction and retail sectors and strongest among health and engineering businesses, the researchers said.
Wage growth also receded over the past month, possibly reflecting an increase in employers’ bargaining power as more candidates become available to hire. The permanent salary index fell to 54.4 from 56.5, signalling that pay growth moderated. The temporary pay index edged down to 50.7 from 50.9.