City Comment

26 May 2010

However, first indications are that it will be decisive and will deliver on early deficit reduction. This should have heralded a positive response from the markets but real concerns that the euro cannot now be sustained across its diverse economic and cultural spread, have dampened even muted celebration in the UK.

Furthermore, as the inflation rate reached 3.7%, there was also a slowdown in retail sales growth and a rise in unemployment, this latter reaching its highest level since December 1994. This all served to emphasise that UK plc is not yet out of the woods and the £6bn of spending cuts demanded by the Chancellor will need to be very carefully targeted if a dip back into recession is not to be triggered. Just how that will be achieved is yet to be revealed but a Budget is promised within the next month.

Despite this dose of economic reality the recruitment industry appears to be enjoying a modest uplift from its 2009 low-point with manufacturing especially helping to drive the economy forward. Although substantial permanent hiring recovery is unlikely while unemployment sits so high and with an uncertain outlook for the public sector workforce, there are positive signs that increased visibility is improving business confidence. A rise in temporary business, as mirrored by government temporary employment data, is a strong early cycle indicator. Business confidence, encouraging a much needed rise in investment, should be further improved by the abolition of the employers’ NI increase due next April.

A rise in temporary business, as mirrored by government temporary employment data, is a strong early cycle indicator.

Nevertheless, the big question now is public sector and how it will affect the whole economy and particularly the recruitment industry which is so heavily exposed?

At least 20% of industry sales are estimated to derive from public sector and spending curbs may target some of this budget. Overall, cuts will be deep and job losses are inevitable but initially the focus is on quangos, IT, consultancy and advertising with some ring-fencing of front line services. Longer term many expect the procurement of all government bought-in services to be scrutinised closely.

So far little has been provided on detailed cuts and, indeed, as Hays’ results indicated, public sector recruitment sales have already begun to decline but there is much more news still to come.
Sue Dodd, director, Agile Intelligence

Agile Intelligence provides business, market and competitive intelligence and analysis ranging from individual customer or market sector appraisals to online services which keep whole sectors up to date. It also provides business intelligence consultancy which focuses its clients’ knowledge of their customers and business environment on true value creation and from this builds their product & service innovation and delivery capabilities. The combination of research and business consultancy services offers clients an unrivalled tool for corporate decision-making at the highest level while simultaneously facilitating a well-informed, more market-focused workforce