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Employers cut numbers of temporary staff following AWR, according to CBI/Harvey Nash report

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Employers are scaling back on temporary staff following the introduction of new agency workers rules, according to a survey by the CBI and recruiter Harvey Nash.

The survey shows that jobs are being created across the private sector, led by small and medium-sized companies, but that pay restraint remains the norm, with nearly half of all firms planning a below-inflation pay award or targeted pay rises.

But there is a marked difference between permanent and temporary recruitment with prospects for temps deteriorating significantly ahead of the October introduction of the Agency Workers Directive (AWR). The CBI is calling for a full review of the impact of this directive to strip out any Whitehall-inspired gold-plating to minimise the damage and retain as many job opportunities as possible.

Almost half (47%) of employers are predicting their workforces will be larger in a year and 19% predict they will be smaller but only 7% of firms are operating a recruitment freeze, compared with 61% during the depths of the recession in 2009.

Ahead of the introduction of the AWR, just 16% of employers are planning an increase in the use of temps.

And prospects for graduates are slowly starting to improve, with a balance of +11% of firms planning to take on more university leavers in the next six months.

Neil Bentley, CBI deputy director general, said: "It is encouraging that firms right across the UK are growing their workforces, especially smaller companies.

"But employers are making hiring plans on shifting sands and there is a risk the tentative private sector jobs recovery could be blown off course by fast-moving economic events at home and abroad.

"We need to be doing all we can to get the UK working, so it is worrying that changes to rules around hiring agency workers are leading to fewer openings for temps.

"There needs to be an early review to minimise the damage this directive is causing and to ensure we retain as many job opportunities as possible.

"We've also set out some new proposals for boosting employment, including a Young Britain Credit to encourage more firms to hire unemployed young people."

On pay, the survey shows that restraint remains essential in these challenging economic times, helping preserve jobs and keeping companies competitive.

Where pay rises are planned nearly half (49%) of employers are opting for a general increase below the rate of inflation or targeted awards for some members of staff and 12% of all firms are planning a pay freeze at the next review, compared to 55% in 2009, and pay freezes are concentrated among those firms with fewer than 50 employees (33%).

Albert Ellis, CEO of Harvey Nash, added: "The UK jobs market is holding up, with robust demand for highly-skilled staff in professional services, science and IT, but there is a question mark about whether private sector recruitment can keep pace with public sector job losses.

"With the risk that economic conditions may well become more challenging, companies are understandably taking a cautious approach to pay for next year, particularly in small and medium-sized firms.

"When comparing the UK's labour market to mainland Europe, it remains relatively favourable, but the implementation of the Agency Workers Directive is further degrading Britain's standing as a business-friendly environment in which to invest."

For the first time, respondents were asked about boardroom diversity to give a picture of practice outside the FTSE 350, which is being monitored by Cranfield University. It shows that outside FTSE 350 companies progress is being made, but more needs to be done: More than two thirds (69%) firms in the sample are actively pursuing improvements in the gender diversity of their board.

The CBI/Harvey Nash Employment Trends Survey, covers 462 UK companies, and was conducted between August and September 2011.