Axes sharpened as recession bites

Like their colleagues around the world, managers in the UK have been watching the growing economic storm with trepidation. But now there are clear signs that employers are poised to take an axe to their workforces.

Start being very afraid. There are clear signs that the credit crunch and general economic slowdown is starting to feed through into job cuts.

A raft of British surveys are all pointing to a much tougher employment climate over the next 12 months, with redundancies rising, vacancies left unfilled and salaries being squeezed.

Since last summer and the start of the sub-prime/credit crunch crisis, employers have by and large held back from making actual cuts in the headcount, hoping that any slowdown will be shortlived.

But now, it is clear, many managers may be spending the next few months having awkward and unpleasant conversations with a growing number of their workers or may even find themselves on the receiving end of such discussions.

A Labour Market Outlook survey by the Chartered Institute of Personnel and Development and accountancy firm KPMG has predicted a sharp rise in the proportion of employers expecting to make at least some staff redundant in the coming months.

Its poll of 1,553 employers found almost two in five intended to make some employees redundant this quarter, a sharp increase on the 17 per cent reported in the autumn of last year and the highest quarterly figure since 2004.

A quarter of those expecting to make redundancies this quarter reported that at least 10 staff would lose their jobs.

Another study by KPMG, this time with the Recruitment and Employment Confederation, has also suggested that the British labour market is slowing.

It has pointed to softer growth of demand for staff, resulted in turn in subdued rises in permanent placements and temp billings. At the same time pay growth has weakened further.

And accountancy firm Deloitte has suggested that the UK graduate recruitment market is showing signs of slowing, with signs of increased competition among graduates.

It has reported a 22 per cent increase in applications to its own graduate programme, where it takes on around 1,400 graduates a year in the UK.

In the past, it said, it had received around 10 applications for every vacancy but for this year's programme it had already received 2,400 applications by the time the application process opened last October.

The situation is looking increasingly grim across Europe, too. The monthly European employment index carried out by recruitment firm Monster reported a 16 point dip in January as the number of new jobs being posted online fell sharply.

The biggest declines were in the Netherlands and Sweden, followed by Germany, it found.

However, Monster did point out that, year-on-year, the index was still up 14 per cent, although the growth rate was now the slowest it had been for five months.

Around half of the slowdown was simply the seasonal decline you often get in January, added Monster.

"The Monster Employment Index Europe's dip in January was expected, but only part of the broad-based decline can be explained due to a seasonal slow-down," said Andrea Bertone, regional director of Monster Worldwide Europe.

"It is possible that employers have become more cautious in their hiring plans in face of a global economic downturn. However, it should be noted that online job availability remains well above levels from this time last year, reflecting historically low unemployment rates across Europe and increased utilisation of the internet for recruitment," she added.

Commenting on the CIPD survey, CIPD chief economist John Philpott said employers' initial reactions had been to hold fire and simply take stock of the emerging situation.

"But a substantial number now expect to trim their workforces, in the private sector because of being squeezed by a combination of tougher trading conditions and higher costs and in the public sector because of being required to make further efficiency savings and cope with tighter budget settlements," he explained.

"With net recruitment activity still positive, signs of mounting employer pessimism shouldn't be read as evidence of a jobs market approaching meltdown. But it does suggest that the UK is entering a period of slower employment growth and somewhat greater job insecurity than in recent years," he added.

When it came to pay, the CIPD poll found that almost a fifth of employers planned to conduct a pay review in the winter quarter.

Nearly a third conducting a review expected the pay of their staff to increase on average by between 3 per cent and less than 3.5 per cent. One in five expected increases of 4 per cent or more.

But Alan Nolan, director at KPMG, warned against firms becoming overly pessimistic and in the process talking themselves into a recession.

"Whilst the rate of expansion continues to slow, January's data still show growth in both permanent and temporary placements. Despite predictions of redundancies and the financial market gloom, employers still remain optimistic," he said.

"For example, many companies are planning to take on an increased number of graduates this year.Different sectors carry on being affected in different ways. Whilst workers in the construction industry remain in demand, investment banks are seeing a reduction in graduate salaries in a bid to level out the playing field.

"Employers will wait and see whether the uncertainty in the job and the financial markets will lead to further interest rate cuts," he added.

Top project managers in the digital, telecoms and media industries, meanwhile, are taking a hatchet to their rates, in a sign of belts being tightened there, too.

A study by UK consultancy PM3 has suggested that the fees charged by top consultants have dipped by as much as £300 per day, or an average drop of 35 per cent.