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Jobs market fears mount as recruiters warn on Brexit uncertainty

The undisputed strength of the UK economy since the financial crisis has been the jobs market.

The employment rate currently stands at 76.1%, the highest since comparable records began in 1971, while the jobless rate of 3.8% is the lowest since 1974.

During the three months to the end of July, the latest figures which are available, 369,000 more people found work – the majority of them women.

And the ranks of the economically inactive, those people between 16-64 who do not have a jobs but who are not classed as unemployed because they have not been actively seeking work within the last four weeks, are also at their lowest since 1971.

It is a truly impressive record.

Increasingly, however, economists are starting to wonder whether this is as good as it gets for the labour market.

Those concerns are likely to mount following trading updates today from two of the UK’s leading recruitment firms, PageGroup and Robert Walters.

PageGroup said that, during the three months to the end of September, its UK gross profits fell by 4.1% to £33.8m with “heightened Brexit-related uncertainty now impacting candidate and client confidence at all levels”.

It has responded by cutting the number of UK “fee earners”, the employees who place job candidates, from around 1,000 at the beginning of the year to 945.

Steve Ingham, the chief executive, said the company had seen “increasingly challenging trading conditions” in many of its larger markets, including Greater China, the UK and France.

He added: “Looking ahead, the deterioration in trading conditions seen during [the third quarter] across the majority of our regions is anticipated to continue.

“In the UK, heightened Brexit-related uncertainty is expected to remain as we approach and go beyond 31 October.”

Shares of PageGroup have fallen by just under 12% on the news, taking them to a level not seen since December 2016, while clipping £162m from the company’s stock market value.

Meanwhile, during the same period, Robert Walters reported an 11% drop in UK gross profits to £24.8m.

It reported: “Client and candidate confidence continued to be generally weak in the UK across both the recruitment and recruitment outsourcing markets.”

Recruiters say permanent staff appointments have been falling in recent months

Robert Walters, the company’s Brexit-supporting founder and chief executive, added: “The ongoing uncertainty surrounding Brexit, the US-China trade tariff stand-off and Hong Kong protests, coupled with the significant impact of the gilets-jaunes protests experienced [in France] earlier this year, have combined to create a unique set of cumulative headwinds.”

The news from both companies has sparked a wider sell-off in recruitment firms.

Robert Walters itself slipped by 5.5% while smaller rival Sthree fell by nearly 7%.

Hays, the biggest such company in the UK, fell by 3.5% while over in Switzerland Adecco, one of the big multinational recruitment players, saw its shares fall by just over 1%.

The twin warnings appear to confirm the findings of a survey published today by the Recruitment and Employment Confederation (REC) and the professional services firm KPMG which said that, in September, permanent staff appointments fell for the seventh month in a row while with overall job vacancies rose at their weakest rate since January 2012.

REC also said that the supply of candidates for both permanent and temporary jobs had continued to fall which, it added, reflected that people were becoming more hesitant to seek new jobs.

James Stewart, vice chair at KPMG, said: “The Brexit impasse continues to affect the jobs market with employers stuck, unable to make informed decisions, and people unwilling to risk seeking new roles.

“Given that it’s the weakest increase in job vacancies since 2012 and the longest period that permanent staff appointments have fallen since the global financial crisis, it would seem that it’s proving difficult for businesses to shake off the heightened uncertainty and unknowns.

“So with the deadline fast approaching, they may well be waiting to get clarity on the future direction of Brexit before making any key decisions on hiring and investment.”

Taking all these facts together and it suggests that, while businesses await to find out what kind of Brexit agreement – if any – the UK will get on leaving the EU, they are putting recruitment on hold.

That uncertainty also, understandably, appears to have spread to individual workers themselves.

But there are a few points to make about these various pieces of evidence.

The first is that it is important to stress that PageGroup and Robert Walters are global players and are not just seeing a slowdown in the UK – although that does appear to be where the weakness is most pronounced – with storm clouds also gathering in Germany, another market where employment is at an all-time high and Hong Kong, where the recent civil rights protests have had an impact on the economy.

Both companies could also highlight other markets today where they are still seeing solid growth and, to some extent, that should insulate them from the slowdown in the UK.

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The wider picture is that, where employers have no option but to fill a vacancy immediately, candidates for those roles are in a strong position.

The REC survey today noted: “The sustained drop in candidate numbers led to further upward pressure on rates of pay.

“Notably, starting salaries rose at a sharp and accelerated pace.”

It is also worth noting that, according to the REC/KPMG survey, demand for permanent employees across most sectors of the economy still appears to be growing.

In particular, the IT Computing and Hotel Catering sectors both saw a big increase in vacancies during September, with only the benighted retail and construction sectors seeing drop-off in vacancies.

And, should the weakness in the UK labour market persist, there might even be a positive knock-on effect.

The flip side of the UK’s post-crisis jobs miracle has been a marked weakness in productivity.

Unlike countries such as France, where the least productive workers languish on the dole queue, the UK prefers that its least productive workers actually stay in work.

However, should employers hold off hiring people but instead rely on their existing workforces to do the work new recruits might otherwise have done, then, in theory, output per worker should rise.

Longer term, as pay rises have to be paid for ultimately by improvements in productivity, that also ought to be positive for the wages of those people in work.