The FTSE 100 is still lagging below the 4,000 level and the financial papers are full of stories of growing corporate losses and large scale redundancies. The public sector has so far proven a relative safe haven and the large recruiters, notably Hays, have been switching their attention to growing their public sector businesses.

However, even the public sector is now causing investors concern. Earlier this week, we witnessed the first failure of a government bond auction since 1995. Basically, the government has been issuing more and more debt, and therefore pushing up the fiscal deficit, to pump money into the public sector. However, last Wednesday (25 March) it appeared that appetite for government debt had waned which could have significant implications for public spending. The failure followed on closely from comments by the Bank of England Governor Mervyn King that the government should consider reducing its public spending plans given the grim economic outlook.

This could be bad news for recruiters. In Hays’ interim results, announced 26 February, the company confirmed that its public sector business now represents around 29% of its UK & Ireland net fees and achieved growth of 12% in the period. This compares to the fall of 13% in net fee income for the region as a whole. Public sector has been the star of recruitment for the last few months and should still deliver good growth.
However, this recent failure by the government will undoubtedly cause concern that non-core public sector spending could be reduced.

One company benefiting from public sector exposure is Healthcare Locums (HCL). They announced results last week showing revenue up
23% and adjusted operating profits up 44%. The business provides locum staff mainly into the NHS. This area of funding seems to be safe, given the political risk attached to cutting spending on healthcare services. The share price reflects this and HCL is the only large UK staffing business to have seen its share price rise in the last 12 months.

• Michael Vassallo, equities analyst, Brewin Dolphin Investment Banking