Epidemic of redundancies have eased, but outlook still grim

UK employment prospects will deteriorate less slowly in the final quarter of 2009 than at any time since the start of the recession in spring 2008. But this relative improvement is taking place against a backdrop of a much reduced pressure of demand for labour, with employers’ hiring intentions well below pre-recession levels and plans for staff pay rises and changes to hours of work showing no sign that the labour market is anywhere close to returning to proper health.

This is the main conclusion from findings of the latest quarterly Labour Market Outlook (LMO) survey of more than 700 employers, covering all sectors of the economy conducted by Chartered Institute of Personnel and Development (CIPD) and KPMG.

The LMO survey records a negative balance of -3 percent between the percentage of employers expecting to employ more staff in the three months to December 2009 and the percentage expecting to employ fewer. This represents an improvement on negative balances of -19 percent and -10 percent recorded in the spring and summer LMO surveys respectively, with the improvement due mainly to a fall in the proportion of employers planning to make staff redundant compared with earlier in the year.

In the private sector, the jobs outlook is set to further deteriorate markedly in manufacturing and production (a negative balance of -21 percent) but prospects are much more buoyant in private sector services (+11 percent). Within the public sector, employers in public administration report a negative balance of employment intentions of -18 percent.

The LMO survey also identifies reduced working hours and modest pay rises as a further symptom of a weak overall demand for labour. Expectations about the next basic pay increase has fallen to a record low of 1.5 percent, down from 1.7 percent three months ago, with the fall in working hours this year looking set to continue in the 12 months to September 2010. The survey shows that around a sixth of organisations have put in place reduced working hours’ arrangements for at least some of their staff during the past year with a similar proportion saying that they will be asking staff to work shorter hours in the next 12 months to September 2010.

Gerwyn Davies, Public Policy Adviser at the CIPD says: “The UK jobs market remains flat on its back. Things aren’t anywhere near bad as they were earlier in the year when redundancies spread through the economy like a virus. And with things looking up in one or two sectors there is mounting hope that the ongoing gradual decline in job prospects might run its course next year before unemployment reaches 3 million. The patient remains seriously weak, won’t recover for several years even if a return to robust economic growth provides the necessary tonic and could easily relapse if the recovery is as fragile and anaemic as many economists fear.”

Meanwhile Andrew Smith, the Chief Economist at KPMG, says: "This recession has come through not only in job losses but also in greater labour market flexibility – reduced working hours, pay freezes and outright wage cuts. The decline in average pay settlements, expected to fall to a record low of 1.5 percent, suggests that underlying inflation pressures continue to weaken while the risk of deflation is rising – justifying the Monetary Policy Committee’s decision to extend its quantitative easing programme by 25 billion GBP."

9 November 2009

CIPD/ Expatica