Uncertainty in the labour market as employers slow decisions on hiring and investment

The UK’s decision to leave the European Union has resulted in a softening in employers’ hiring intentions, according to the latest CIPD/Adecco Group UK & Ireland Labour Market Outlook. This unique data is based on UK employer sentiment in the two weeks before and two weeks after the EU Referendum and shows that employers surveyed ahead of the EU Referendum were somewhat more optimistic about hiring intentions than those surveyed afterwards.

The survey comes from the CIPD, the professional body for HR and people development, and Adecco Group UK & Ireland, the leading provider of workforce solutions. It finds that the proportion of employers expecting to increase staffing levels over the next three months dropped by 4 percentage points from 40 per cent pre-Brexit to 36 per cent following the decision.

As a result, the net employment balance, based on the difference between the share of employers expanding their workforce and the share of employers reducing their workforce, dropped from +21 pre-Brexit to +17 post-Brexit. However, the fall was significantly sharper among private sector employers, with the post-Brexit employment balance declining to +25 from +39 pre-Brexit.

The survey looks at forward-looking intentions. It finds that many employers expect Brexit to have a significant negative impact on costs and business investment decisions:

  • 33 per cent of employers expect Brexit will have the effect of increasing their costs, compared with 4 per cent that think the opposite
  • One-in-five employers expect to reduce investment in training and skills development and equipment as a result of Brexit, compared with 7 per cent intending to increase investment in training and skills and 5 per cent planning to boost investment in equipment.

Ian Brinkley, Acting Chief Economist at the CIPD, said: “There is clear evidence some employers have become more cautious about hiring following the vote to leave the EU. While many businesses are treating the immediate post-Brexit period as ‘business as usual’, and hiring intentions overall still remain positive, there are signs that some organisations, particularly in the private sector, are preparing to batten down the hatches. The softening of the British pound and the expectation of further weakness in the currency as we wait to see the terms of our exit from the EU has meant a third of employers expect their costs to increase over the next three months. In response, they’re looking to cut investment in crucial areas like skills development and equipment, but we think this reaction is premature.

“The economy had positive momentum going into the referendum and there is a risk that employers will create a self-fulfilling prophecy if they over-react in the expectation of a downturn. Instead of looking at cuts, now is the time to be talking about investment in people and in processes and equipment that will boost productivity and improve the resilience of businesses and our economy.”

Commenting on the research from a recruitment point of view, John L Marshall III, CEO of Adecco Group UK & Ireland, said: “While we have not yet experienced a significant effect on overall hiring since the referendum, it is clear that uncertainty around Brexit is making employers nervous. The survey indicates that employers have translated this into a wait-and-see approach. This caution seems sensible but unless employers want to see their growth stymied, they need to take proactive steps to future-proof their labour force. This means labour force planning and it means investment in training.

“Employers also need to start thinking about how they attract talent. Four in ten companies think hiring EU migrants will be harder over the next 12 months as a result of Brexit. Organisations need to understand the make-up of their workforce, how restrictions on migrant talent may affect them, and where they are strong and weak on skills. The next step is thinking about how to get the right talent through your door.

“There is undoubtedly uncertainty but this is also a time of opportunity for organisations to get ahead. Whilst there’s no ‘one-size-fits-all’ approach for future-proofing against Brexit, there are steps that employers should consider. These include conducting a detailed audit of their workforce, mapping current and future skills gaps and investing in training and development.”