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UK firms still hiring workers despite recession fears

·Business Reporter, Yahoo Finance UK
·3-min read
A man walks past a sign advertising for jobs, in London, UK.
UK business are still recruiting workers despite fears of a looming recession. Photo: Toby Melville/Reuters

Firms in the UK are still looking to hire new staff despite fears of a looming recession and soaring inflation, a new study has shown.

According to accountancy and business advisory company BDO's latest business trends report, the employment index reached its highest reading in over two and a half years at 114.79 as employers aimed to fill up vacancies.

It was the highest level since January 2019, up 0.23 points compared to June.

Staff shortages heightened by Brexit and the COVID-19 pandemic have been driving a buoyant labour market as firms push hard to recruit. This can be seen in the unemployment rate which stood at 3.8% in the three months to May.

Read more: Pound slumps as Bank of England warns UK to fall into recession this year

However, BDO said that confidence fell for the fourth consecutive month, reflecting the downward pressure on economic activity, while the inflation index reached another record high.

The inflation index hit a high of 118.72, driven by increases across both the input inflation and consumer inflation indices, with the former recording its highest ever reading of 121.19 due to a weakening currency, supply side shortages and significant supply chain disruption.

“This tough inflationary environment and the threat of a recession look to diminish employers’ hiring intentions towards the end of this year, mirroring the trend of decline that was seen by the employment index during the 2008 financial crisis,” the BDO said.

In line with the decline in economic activity, BDO’s optimism index fell 0.30 points to 101.53, its lowest point since April 2021. While both the services and manufacturing sectors experienced a fall, the overall decline was driven mostly by the latter with a 0.69-point decrease.

Watch: How does inflation affect interest rates?

“Reports of a less optimistic outlook are by no means surprising as the economy now faces the prospect of a recession towards the end of the year,” Kaley Crossthwaite, partner at BDO LLP, said.

“Although it’s encouraging to see recruitment intentions remain strong, we know that talent shortages are an issue, with many businesses reporting they are struggling to find people with the right skills.

“Despite the current hiring activity, we’re likely to see demand for labour and the employment index decline later in the year, with employers devoting their resources to managing inflation, interest rate rises, and ever-growing energy costs.”

Read more: Bank of England's Bailey concerned big pay rises may fuel further inflation for the poorest

It comes as the Bank of England predicted that the UK will fall into recession in the last three months of this year, as well as contracting through next year.

Lasting for five quarters, this would be the longest recession since after the 2008 financial crisis.

It said: "The United Kingdom is now projected to enter recession from the fourth quarter of this year. Real household post-tax income is projected to fall sharply in 2022 and 2023, while consumption growth turns negative."

Watch: What is a recession and how do we spot one?