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Increase in private sector recruitment has been offset by public sector job losses

The impact on the labour market of a slight rise in private sector recruitment is still being cancelled out by large-scale public sector job losses, according to this quarter’s Labour Market Outlook from the CIPD and KPMG.

The survey also forecasts that pay inflation may pick up in the next twelve months, with average pay award expectations across all sectors rising to 1.7% from the 1.3% recorded last quarter.

The survey of employers suggests that overall employment levels may show a slight improvement in the second quarter of 2011. The Labour Market Outlook net employment index, which measures the difference between the proportion of employers that intend to increase total staffing levels and those that intend to decrease total staffing levels in the first quarter of 2011, has risen to +3 from -3 in the past three months.

The private sector is continuing to generate jobs growth, with manufacturing (+41) among the most buoyant parts of the UK economy. This is in contrast to the public sector (-52).

The report's 12-month index, which gives a longer-term perspective on recruitment and redundancy intentions, has risen to -3 from -9 since the previous report. Despite this improvement, the number of organisations planning to make redundancies has risen to its highest level (39%) since the survey began in 2004, with more than half of public sector organisations (56%) planning redundancies in the second quarter of 2011. More than a quarter of private sector firms (29%) are also making redundancies.

Gerwyn Davies, public policy adviser at the CIPD, said: "The jobs market appears to be taking baby steps on the long path to pre-recession levels. There are many sectors, such as manufacturing, that are taking large strides forward. But consumer-facing industries are simply edging forwards due to a fear of another consumer slowdown. Together with the onset of public sector cutbacks, the risk of an employment slowdown appears finely balanced."

On the pay front, more firms are now forecasting that they will be increasing employee pay over the coming 12 months (52% compared to 47% last quarter) and the average size of the predicted pay award has increased from 2.3% last quarter to 2.5%, but still well below the future rate of inflation. The report shows that the main cause of the expected increase in salaries is organisations' ability to pay (31%). This indicates that firms have more money to spend on pay awards. While inflation is currently high, it has not resulted yet in a sharp rise in the level of forecast pay rises - only 18% of companies report an upward pressure on salaries and just 6% cite recruitment and retention issues will result in higher pay, reflecting the subdued labour market.


Pay forecasts in the public and voluntary sector are far more subdued than the private sector. Public sector employers predict pay to increase by just 0.3% over the coming year, while the voluntary sector reckon it will increase by 1.5%.


On the pay findings, CIPD reward adviser, Charles Cotton, said: "If a salary rise indicates an organisation's confidence in the future then, given the rise in pay predictions revealed by this research, private sector firms are becoming less wary of what the next 12 months has in hold for them. By contrast, most public sector employers do know what the future has in store for them over the coming year."

Malcolm Edge, head of markets at KPMG, added: "Many businesses are very nervous about the rest of 2011. The recent VAT increase, low consumer confidence and falling disposable incomes have left businesses feeling the strain - and there's added pressure from mounting fuel and utility costs. ??"Despite that, some areas in the private sector feel confident enough to recruit. But with the public sector shrinking, the UK's jobs market will continue to diverge.

"However, business confidence is growing in Europe with more than half of business leaders optimistic about growth through joint ventures, collaborations and acquisitions. As a result, business sectors such as UK manufacturers and exporters will continue to see growth through overseas demand. Making UK businesses resilient through cost reduction and efficient business models will help secure and prepare them for whatever may be on the horizon.

"The Government is taking a number of actions to encourage growth in order to keep the UK competitive and place to do business. Companies need assurance now that relief will be coming their way to minimise red tape and provide the necessary support to help them to drive the UK economy to sustainable growth."