Britain braces for vicious spiral as jobs disappear

How can you tell the economy is in a tough spot? When the recruiters are cutting jobs.

Hays, one of Britain’s biggest recruitment firms, has cut 1,150 roles over the last year as it battles a slowdown in the global hiring market.

In the last quarter alone, the group axed 650 jobs across its workforce as it tried to offset what it called a “clear slowdown” in the labour market. Shares dropped 7pc on Tuesday after it issued a profit warning.

“Overall market conditions became increasingly challenging through the quarter,” chief Dirk Hahn said.

Hays joins other businesses that are shedding staff including Barclays, which cut its headcount by 5,000 last year, and Channel 4, which is considering cutting up to 200 staff. Swathes of the legal industry are taking a creative route by cutting pay and hours to get payroll bills down – manoeuvres last seen in the financial crisis.

Neil Carberry, chief executive of the Recruitment and Employment Confederation (REC), says high interest rates are largely to blame for the job cuts across the economy.

“It is not just interest rates feeding through to consumer spending, it is feeding through to the cost of doing business,” he says.

Costs for many hospitality and retail businesses are also rising rapidly.

Carberry says: “Consumer-facing sectors faced a 10pc rise in the minimum wage last year, another 10pc rise coming in April, and they are imperfectly protected from rising business rates, particularly in hospitality.”

As a result, businesses are making people redundant or taking on fewer staff, often taking unpalatable steps such as limiting opening hours to save money. Revolution Bars recently announced plans to shut eight branches, citing the looming rise in the national living wage as a key reason for the closures.

The scale of the turnaround in the jobs market has been startling.

Before the pandemic, companies hired steadily and employment rates repeatedly broke records.

Covid disrupted everything. Yet after a brief hiatus, employment rebounded rapidly and companies were left struggling to hire as workers re-thought their lives or faced long-term sickness issues. Companies were desperate to hold onto their staff, meaning any business that wanted to expand had a fight on its hands to get hold of the workers it needed.

Vacancies spiralled to a peak of 1.3m in May 2022, up from around 800,000 or so pre-pandemic.

Recruiters, including Hays, were major beneficiaries of the rush to hire.

However, vacancies have now been falling steadily for over a year. By November 2023, the Office for National Statistics found 949,000 jobs available, meaning demand for workers is getting back to something more like the old normal level.

Redundancies are also on the rise. After reaching a monthly low of just over 7,000 in December 2021, the rate had more than quintupled to 38,500 by November 2023.

The jobs downturn has been broad. The REC’s tracker of hiring shows employment growth in hospitality and retail has gone into reverse. However, even sectors that had been hiring rapidly as recently as a year ago are now shedding jobs. 

The tech sector, which had been big winners from the working from home revolution, is also seeing falling demand for staff.

Construction businesses are also cutting back on hiring.

“Construction is always a bit of a bellwether,” says Carberry. “It is hugely exposed to interest rates, and was very weak through 2023.”

Interest rates are at the heart of why job openings are disappearing across the country – and why the downturn is only likely to continue.

The Bank of England has raised interest rates from 0.1pc in November 2021 to 5.25pc today, in a painful and prolonged bid to drag inflation back to its 2pc target.

Higher borrowing costs have made it more expensive for companies to expand. At the same time, rampant inflation has led employees to demand higher wages. Both factors have curtailed hiring.

After peaking at 11.1pc in October 2022, inflation is now tumbling rapidly. This has led to calls for rates to be cut to save the UK from recession.

However, officials at the Bank, led by Governor Andrew Bailey, have been cautious. They are concerned that remaining strong wage growth will keep fuelling inflation and could allow the headline rate to rise once again.

Policymakers have repeatedly argued that the jobs market will be a key deciding factor when it comes to the question of when to cut rates.

Slowing pay growth and weaker hiring will be critical evidence in making the case that inflation has been well and truly squeezed out. In a sense then, the downturn in the jobs market is not an aberration but precisely what the Bank wanted.

Tony Wilson, director of the Institute for Employment Studies, says: “The Bank of England appears to be getting what it has wanted through monetary policy: we are definitely getting a slowdown in the labour market.”

Headcount is still rising in some corners of the economy, including financial services and hospitality, but the dominant growth industry is the state: healthcare and social work expanded its headcount by more than any other industry last year.

Overall private sector employment has effectively ground to a halt, even as the public sector keeps growing. The state workforce is now back to the size it was in 2012, at 5.9m people, undoing just over half of all the cuts made under the Coalition and Conservative Governments since 2010.

It means the underlying strength of the jobs market is even weaker than the headline numbers suggest, propped up by Government hiring rather than more fundamental private sector growth.

Worse could be to come. As unemployment rises, it will have knock on effects for other businesses as people who have lost their jobs cut back on spending. This may force more staff cuts in turn, sparking a vicious spiral.

A growing number of businesses are already going under – as many as 2,500 are entering insolvency every month, a rate far above pre-Covid levels, according to official figures.

“Where we are resting our hopes in [is] our jobs outlook survey, which is actually quite positive for the middle of the year,” says Carberry. “But that will take a long time to pull through.”

Ultimately, it may be falling interest rates that decide when the jobs downturn eases. With the Bank holding firm for now, more pain in the short-term seems almost certain.