Vicky Pryce, Chief Economic Adviser at the Centre for Economics and Business Research, provides the economic context and trends impacting recruitment and employment.

The first quarter of 2022 saw growth of some 0.8% in the winter months and then a further 0.2% in Q2, just revised from a previous estimate of a drop of 0.1%. This was welcome though it has still left the economy some 0.2% % below pre-pandemic levels whereas the Eurozone is some 1.8% above and the US some 3.5% higher.

On the positive side, unemployment has remained at a decade-long low at 3.6% and staff shortages are still very real in many sectors. Wages are also slowly creeping up.

There are continued skills shortages as some 400,000 people are estimated to have left the labour force since the start of the pandemic, partly because of Brexit but also as inactivity rates have gone up.

Pay disparity between sectors

But there is great disparity between sectors in terms of salary.  In the three months to July public sector wages rose by only 2% while those in the private sector went up by 6%. The highest private sector increases were in the wholesale, retail, hotels and restaurant category, at 7%, where staff shortages have been most acute. The finance and professional services sector and construction were the next highest with rises of 5.9% and 5.4% respectively.

Still overall pay is falling by some 2.6% in real terms. Companies are finding it hard to pass on increasing input costs, which have included sharp increases in energy prices.

And as demand gets affected by the continued cost of living crisis, despite extra government support in the shape of the electricity price freeze, the economy is expected to stagnate and possibly move into recession in the coming year.

Vacancies falling

Vacancies though still at near record levels are seeing their first falls and the number of insolvencies is finally rising.

Unemployment of course is a lagging indicator and usually starts worsening after a gap after the economy slows down. And the output trends are worrying.

The services Purchasing Managers Index fell in September for the first time since early 2021 and manufacturing PMI has been declined for the last couple of months.

Consumer and business confidence has dropped and GDP forecasts for 2023 have been downgraded again with the OECD now predicting that the UK alongside Germany and Italy will be in recession through most of 2023.

Growth, growth, growth 

The current government is determined to achieve ‘growth, growth and growth’ as the new PM, Liz Truss said in her conference speech.  But interest rates are rising, having gone up by a further 50 basis points on 22 September to 2.25%- from just 0.10% a year ago, the pound is under pressure and the fiscal situation is under scrutiny by the markets following the ‘mini-budget’ of September 23.

Bank of England intervention in the bond market to bring yields down has on the whole been reasonably successful, but mortgage rates have jumped, some two-year fixes to above 6% making house purchases unaffordable for many.

And there may be more public expenditure cuts to come to fund the promised tax cuts.

The efficiency savings that the new government wants to see all point to tough conditions in public sector employment and wages despite obvious and large staffing gaps.

The government is talking of expanding the number of work visas for overseas workers though there seems to be no overall agreement towards that approach in the new cabinet.

The current spending plans, until they get revised in the budget event due in November, assume that anything above 2% in wage offers to public sector employees will come from Departmental own budgets, which may in fact get even further squeezed.

And private sector businesses, already hit by extra energy and other costs, will be hesitant to expand as the economy slows down though the reversal of the employers (and employees) NI increase should help.

The signs are therefore of a worsening economy and a weaker jobs market. But we are starting from a high employment base, and staff pressures – and opportunities – will still be here for some time to come. 

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