UK companies 'consider redundancies' amid business pessimism

Inflation and supply issues cause drop in business confidence

Hiring plans in London have been put on hold by companies, a report says. Reuters

Recruitment plans among British businesses have dipped to their lowest in two years because of market pessimism and low confidence, an influential report has found.

Hiring plans are being paused by companies that are considering redundancies to manage rising costs, accounting and advisory firm BDO said in its analysis of more than 4,000 businesses surveyed across different sectors.

A significant drop in optimism and productivity in November was followed by a very slight rise in December, remaining well below historic levels.

BDO uses employment, inflation, optimism and productivity indexes for an overall picture of business sentiment. A score above 95 represents growth, and anything below is considered a contraction.

In the latest report, business productivity and optimism were both given scores below 92, putting them firmly in negative territory.

They were partly dragged down by declining manufacturing output, as global supply chain disruption has made it harder for companies to get hold of important materials, and energy prices have risen sharply.

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The services sector was a welcome bright spot with productivity increasing fractionally since the last report, indicating that consumers were more active over the typically busier Christmas period.

Meanwhile, the employment index was scored just under 111 points, but it represents the weakest reading since January 2022.

Hiring intentions among businesses reached the lowest level since the end of 2020 when the UK was hit by the Omicron wave of Covid and faced further lockdowns.

It suggests that employers are having to pause recruitment as they face higher costs and the threat of a recession, and are even having to make more redundancies, BDO said.

“Although output and confidence levels grew slightly in December, the marginal upticks will do little to calm the nerves of UK businesses," said Kaley Crossthwaite, a partner at BDO.

“Inflation and supply chain pressures are clearly being felt across the board, as employers pause recruitment plans and consider redundancies to manage rising costs.

“With an expected recession increasing pressure on the UK economy, firms will be looking for the right support from the government as it works to encourage growth and confidence in the run-up to the spring budget.”

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Earlier in the week, online retail giant Amazon said it planned to cut more than 18,000 jobs around the globe, including in Europe, blaming the “uncertain economy” for the cuts.

And software company Salesforce also recently announced it would be making a wave of redundancies, which could affect hundreds of staff in the UK.

Analysts have suggested that many businesses hired rapidly over the pandemic and are now being met with weaker demand amid an economic downturn, prompting them to find ways to cut costs.