LONDON – British businesses plan to cut hiring as the economic outlook darkens, but a shortage of workers to fill staff gaps means that they will pay at record rates for those they need, two separate reports showed.
According to accountancy and business advisory firm BDO’s monthly business trends report, output fell for a second month, reaching levels associated with a shrinking economy. Companies are responding by scaling back recruitment, the accountancy firm said.
Despite the weaker outlook, the Chartered Institute of Personnel and Development (CIPD) found that the typical British employer is planning to raise pay by 5 per cent, the highest since its records began in 2012.
The human resources industry group said that more than half of firms intend to recover their costs by raising prices rather than finding savings, an observation that may alarm rate-setters at the Bank of England (BOE).
“The opposite was true 12 months ago, suggesting that the tight labour market will increasingly feed through into price rises for organisations’ goods and services,” CIPD said in a report on Monday.
Vacancies are still proving hard to fill, it added.
Together, the reports add to evidence that the economy will both stagnate and generate inflation well above the BOE’s 2 per cent target. Policymakers are looking to data on wages and inflation to gauge how much more they need to raise interest rates.
Last week, official figures showed that Britain narrowly avoided a recession at the end of 2022 as the economy flatlined in the final quarter. Many economists expect a slump this year.
Data this week is expected to show inflation still in double digits and regular wage growth accelerating, piling pressure on the BOE to act despite the fragile economy.
BDO found that business optimism remained weak, but fears about weak consumer spending in the services sector were offset by an improving outlook for manufacturers due to falling input prices. As confidence stagnated, the employment index – a measure of hiring intentions – fell to the lowest level in more than a year. BLOOMBERG