Job cuts ‘will continue even as the economy starts to recover’

Author: By David Prosser, Business Editor

The outlook for UK employment prospects is now deteriorating more slowly than at any time since recession took hold in the middle of 2008, but it is still deteriorating, according to KPMG’s quarterly labour market outlook, which it publishes with the Chartered Institute of Personnel and Development (CIPD).

The survey shows a negative balance of minus 3 per cent between the number of employers planning to take on more staff in the final quarter of the year and the number of employers planning to shed jobs. That result is a marked improvement on balances of minus 19 per cent and minus 10 per cent in the second and third quarters of 2009 respectively, but it still suggests joblessness is set to increase yet further during the rest of the year.

Demand for labour continues to be subdued and plans for staff pay rises and changes of hours of work suggest the market remains someway short of close to a return to health, the research says.

“The UK jobs market remains flat on its back ? things aren’t as bad as they were earlier in the year when redundancies spread through the economy like a virus,” Gerwyn Davies, public policy adviser at the CIPD, said. “There is mounting hope that the ongoing gradual decline in job prospects might run its course next year before unemployment reaches 3 million. But 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.”

Andrew Smith, the chief economist at KPMG, said many of those people still in employment were also seeing declines in living standards. “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,” he said. “The decline in average pay settlements, expected to fall to a record low of 1.5 per cent, suggests that underlying inflation pressures continue to weaken while the risk of deflation is rising.”

Continued increases in unemployment will worry the Government, which knows improved consumer spending is its best chance of getting the UK out of recession. But economists are taking solace from the fact that unemployment has not risen as quickly as expected this year and that increases seem to be slowing.

KPMG says private-sector services businesses are currently the most optimistic about an improvement in hiring, while the manufacturing and production sectors are more negative. The public sector also seems to be much more downbeat, having fought off job losses at the beginning of the downturn. KPMG’s survey reveals a negative balance of minus 18 per cent on hiring versus firing amongst employers in public-sector administration.

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