Hiring crunch prompts UK firms to rethink expansion

Bloomberg

UK companies are scaling back their ambitions in response to chronic labour shortages that show few signs of abating, an employment group has warned.
The report by the Recruitment and Employment Confederation and KPMG found job vacancies and placements both slowed in May, possible signs that employers are starting to “rethink their growth plans because of skills shortages which are proving difficult to fix as quickly as they need.”
The warning underscores the degree of exasperation felt by many companies at not being able to hire despite dangling bumper pay increases — and the potential cost to economy in unrealised potential.
The initial effects of [the shortage] have been obvious, particularly the driving up of starting salaries,” said Claire Warnes, head of education, skills and productivity at KPMG. “However, perhaps we are starting to see wider consequences of the systemic issues in the available workforce to support the growth opportunities which employers are chasing.”
The survey found the downturn in candidate supply eased only slightly last month, with recruiters partly citing the reluctance of people to apply for new roles due to increased economic uncertainty. A lack of foreign workers was blamed by those trying to fill temporary roles.
Amid the crunch, starting-salary inflation remained close to record highs. That will keep alarm bells ringing at the Bank of England, where inflation-fighters are worried that firms will keep raising prices if they are unable offset the rising cost of labour and raw materials by boosting productivity.
Job placements rise at the slowest pace for over a year, while growth in vacancies hit a three-month low.
Meanwhiiel, pressure on UK firms is growing as the number filing for insolvency climbs and further inflation-fuelled pain looms.
While overall insolvency numbers for the first three months of this year were around the same as in 2021, it’s a bleaker picture stripping out the smallest firms and companies that were liquidated when solvent. Those filing while insolvent more than doubled in the first quarter, and early indicative data for April shows a 21% rise from last year, according to data from PwC.
It’s a trend that is unlikely to abate as higher energy and material costs rise to make life harder for the UK’s businesses. Inflation is already at a 40-year high and unlikely to ease quickly. On top of that, measures to help businesses survive the pandemic, including relief from landlords looking to collect unpaid rent, ran out in April.
“Government support was removed and now we have moved into an environment where there are quite a number of significant economic headwinds,” David Kelly, a partner in PwC’s business restructuring business, said. Inflation, supply chain problems, labor shortages and energy costs are all likely to make life harder for the UK’s businesses, Kelly said.
PwC’s figures are part of a growing chorus of warnings about the health of UK firms from those in the business of winding up or turning around businesses.
Almost 1,900 UK companies were in critical financial distress at the end of March, a 19% increase compared to a year earlier, according to research by insolvency practitioners Begbies Traynor.
For the first quarter of the year, the most marked uptick in the number of insolvencies was in the north-east and Yorkshire region of England, with a 52% rise in total insolvency numbers. London saw a decrease for the first three months, with around 500 fewer than a year earlier.