Seven in 10 CFOs say they expect to reduce hiring over the next year, according to a survey of major UK companies that suggests job and wage growth will be constrained by a desire to cut costs.
More than two-thirds (70 per cent) of respondents to Deloitte’s quarterly CFO survey said they expected to cut back on hiring in the next 12 months, while just 3 per cent predicted they would increase their recruitment.
A greater focus on cost control was identified as a key reason for a reluctance to increase hiring. More than half (58 per cent) of finance leaders said cost cutting was a strong priority for the next 12 months, the highest level reported in the survey for 10 years.
The report noted that “the labour market has shown resilience, with further falls in unemployment and earnings rising at the fastest pace in more than 10 years”, but added: “The brunt of the UK’s slowdown in the last year has been borne by the corporate sector, with the jobs market remaining buoyant. That disconnect is unlikely to last.”
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Brexit was identified as a key concern for large companies, with more than three-quarters of the 91 CFOs surveyed agreeing that the long-term business environment in the UK would be worsened by leaving the EU, although this number was down from 83 per cent in the previous quarter.
“The priority appears to be curbing costs, not expansion. With Brexit cited as the biggest risk businesses face, the last quarter has also seen heightened concern over slowing growth in the UK and eurozone, and CFOs are tightening their purse strings in response,” said Ian Stewart, chief economist at Deloitte.
However, CIPD labour market economist Jon Boys said the survey’s findings needed to be taken “with a pinch of salt”.
Boys said while the CFOs had been predicting a negative net balance in hiring – meaning more employers reducing headcount than increasing it – since the first quarter of 2016, unemployment had fallen to record low levels. “There's a whole industry trying to second guess this high watermark [in employment] and so far they've always been wrong,” he said.
Boys also noted there were “legitimate reasons to think that we're more likely to see a downturn, and hiring could take a hit”, citing concerns about a global slowdown in growth and a trade war between China and the US, as well as concerns over Brexit. But he suggested hiring managers should take a business-as-usual approach.
“It's not to say ignore [these predictions], but life goes on,” said Boys. “Orders still need to be filled, there’s still long-term talent planning that needs to be done, so for the most part hiring managers have just got on with that.”
According to the latest official figures, UK employment sat at 76.1 per cent in the three months to July 2019, the joint-highest level on record since 1971. However, the rate of hiring did ease in that quarter, falling below the forecasts of City economists.
Workers’ pay, including bonuses, picked up 4 per cent in the three months to July compared with the same period a year earlier, marking the fastest average wage growth since mid-2008.
Richard Houston, senior partner and chief executive of Deloitte north and south Europe, said falling unemployment rates and higher earnings were a positive sign: “While it’s unclear whether these trends will be sustainable, I do take confidence from the fact that businesses in the UK have long shown themselves to be adaptable and resilient to change.”
The Deloitte survey polled CFOs representing 70 FTSE 350 companies, as well as other large UK companies and UK subsidiaries of major overseas companies in September this year.